OGV Energy's Middle East Energy Review – October 2020

The biggest oil and gas companies in the Middle East announced reorganisations, new discoveries, and new deals while the Organisation of the Petroleum Exporting Countries (OPEC), led by the major Middle Eastern oil producers, warned that global oil demand would likely drop this year more than previously feared.

OPEC revises down oil demand forecast for second month in a row

Over the past month, OPEC once again revised down its estimates for global oil demand for 2020—the second consecutive downward revision because of still high risks about economies and demand due to the pandemic.

In its Monthly Oil Market Report (MOMR) for September, the organisation lowered again its estimates for global oil demand for both 2020 and 2021. This year’s global oil demand forecast was cut by 400,000 barrels per day (bpd), and now OPEC sees demand averaging 90.2 million, lower by 9.5 million bpd compared to 2019.

In the August report, OPEC had forecast oil demand declining by 9.1 million bpd in 2020 year over year.

“Risks remain elevated and skewed to the downside, particularly in relation to the development of COVID-19 infection cases and potential vaccines. Furthermore, the speed of recovery in economic activities and oil demand growth potential in Other Asian countries, including India, remain uncertain,” OPEC said in its report in September.

Next year will not see the return of oil demand to pre-crisis levels, according to the cartel which expects demand rising by 6.6 million bpd compared to 2020. OPEC’s demand forecast for 2020 was also lowered by 400,000 bpd compared to the report in August. 

The world’s largest oil exporter, Saudi Arabia, also signalled recently that the global oil demand recovery is faltering. In early September, the Saudi oil giant Aramco cut the official selling prices (OSPs) of its crude oil going to Asia in October, which analysts saw as a clear sign that Saudi Aramco sees weak fuel demand in the near term. Saudi Arabia lowered the price of its flagship Arab Light crude grade to Asia in October by more than expected, sending a signal to the market that it does not see strong fuel demand in the coming month and that refineries do not have much incentive to buy crude amid weak refining margins.

Saudi Arabia chafes at quota laggards at OPEC+ meeting

Saudi Arabia – which has pushed for all OPEC+ members to start complying with their oil production quotas and stop overproducing – criticised the non-compliant participants in the deal at the meeting of the OPEC+ Joint Ministerial Monitoring Committee (JMMC) on 17 September. 

Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, said at the start of the meeting, in apparent reference to the laggards in compliance: 

“Attempts to outsmart the market will not succeed and are counterproductive when we have the eyes, and the technology, of the world upon us.”

“Full compliance is not an act of charity,” and “repeated promises that are not carried through in a timely fashion may have temporary positive impact, but if these are not delivered, they can come back to bite us all,” the most influential energy minister in OPEC said, adding that “the market can’t be fooled continually.”

OPEC itself issued a toned-down press release saying that the JMMC focuses on market stability and full conformity.

The Committee reviewed the crude oil production data for August 2020 and found that combined, OPEC and non-OPEC countries part of the pact achieved a compliance rate of 102% in August 2020, including Mexico as per the secondary sources. 

“The JMMC reiterated the critical importance of adhering to full conformity and compensating overproduced volumes as soon as possible,” the committee said.

At the same time, the JMMC extended the period in which non-compliant members should compensate for prior overproduction from the end of September through the end of December 2020. The laggards in compliance have pledged that they would fully compensate for their overproduction.

“This is vital for the ongoing rebalancing efforts and helping deliver long-term oil market stability,” OPEC said, and noted, as other organisations did, that the recovery from the crisis has not been equal around the world.

“The JMMC observed that the recovery has not been even across the world and an increase in COVID-19 cases has appeared in some countries. In the current environment, the JMMC emphasised the importance of being pro-active and pre-emptive and recommended that participating countries should be willing to take further necessary measures when needed,” the committee said.

At the end of the JMMC meeting, Saudi Arabia’s Prince Abdulaziz bin Salman had a warning for oil speculators and traders, too.

“Anyone who thinks they will get a word from me on what we will do next, is absolutely living in a La La Land... I’m going to make sure whoever gambles on this market will be ouching like hell,” he said.

UAE promises to compensate for overproduction in August

The United Arab Emirates (UAE), typically an ally of the Saudis in ‘leading by example’ in the oil production cuts, emerged as one of the least compliant OPEC+ producers in August.

The energy minister of the UAE, Suhail Al Mazrouei, admitted that his country breached its oil production quota in August by 100,000 bpd, but promised to compensate for the overproduction.

“While the UAE’s production increased to 2.693 mb/d in August, measures have been taken to compensate for this temporary increase due to peak summer electricity demand in the UAE, which required an increase in oil production and associated gas,” Al Mazrouei said on 1 September.

“The UAE remains fully committed to the OPEC+ agreement, as illustrated in June when we cut an additional 100,000 bopd from our agreed quota,” he added.

In further steps to ensure compliance going forward, the minister said that “Abu Dhabi National Oil Company (ADNOC) has notified its term customers that a 30% nomination cut will be applied to all grades in October.” 

ADNOC is also set to reduce supplies for November by 25%, according to a statement seen by Bloomberg.

Largest oil, gas firms in Middle East announce deals, discoveries

Meanwhile, Saudi Aramco announced at the end of August the establishment of an integrated Corporate Development organisation to optimise the company’s portfolio. The organisation, which became operational on 13 September, will be aimed at strengthening Aramco’s resilience, agility, and ability to respond to changing market dynamics.

“The Corporate Development organisation will focus on growth opportunities as we further sharpen and strengthen our strategic focus to optimise our portfolio and, in doing so, maximise value for our shareholders,” Saudi Aramco’s President and chief executive Amin Nasser said. 

A few days later, Saudi Arabia announced it had discovered two new oil and gas fields in the Kingdom’s north. The Abraq al-Toloul oil field has a flow rate of 3,189 bpd of Arab Light and 3.5 million cubic feet of natural gas, while the Hadabat al Hajara gas field has a daily production rate of 16 million cubic feet of natural gas and 1,944 bpd of condensate—a type of ultra-light oil, the Energy Minister, Prince Abdulaziz bin Salman, said.

In the UAE, ADNOC announced in early September that its subsidiary ADNOC Onshore awarded two Engineering, Procurement, and Construction (EPC) contracts to upgrade two Main Oil Lines and crude receiving facilities at the Jebel Dhanna Terminal in the Emirate of Abu Dhabi. The contracts have a combined value of around US$245 million (899.9 million UAE dirham) and were awarded to China Petroleum Pipeline Engineering Company Limited – Abu Dhabi and Abu Dhabi-based Target Engineering Construction Co. 

“The EPC contracts awarded by ADNOC Onshore will increase the capacity of the two main oil lines and upgrade the Jebel Dhanna Terminal to enable it to receive Upper Zakum and Non-System crude for delivery to the Ruwais Refinery West project,” said Yaser Saeed Almazrouei, Executive Director of ADNOC’s Upstream Directorate.

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