Crude oil has had an interesting August, but on the whole, prices are likely to end the month lower than they started it. West Texas Intermediate shed some 6 per cent this month, Bloomberg reports, and if it loses more today, it would be the sharpest drop since last October. Brent crude is doing a little better, likely to end the month where it started it, around $72 per barrel even after it endured a dive to some $65 per barrel two weeks ago.
Oil prices have been battered by a number of events this month, chief among them the resurgence of Covid-19 in many parts of the world, including in the key Asian and U.S. markets. With the vaccine optimism of last year now only a distant memory, what official sources are calling the fourth wave of infections have wreaked havoc on oil demand outlooks just months after the immediate prospects of demand looked so clear and upbeat. Countering the bearish effect of Covid-19, earlier this week, prices—especially WTI—got a boost from the disruption of oil production and refining operations in the Gulf of Mexico and the Gulf Coast thanks to hurricane Ida.
The hurricane prompted the shut-in of some 95 percent of Gulf of Mexico oil production and about 12 percent of U.S. national refining capacity. That meant taking offline 1.74 million bpd in oil production and 2.11 million bpd in refining capacity. However, the effect of this disruption was short-lived, suggesting that the bearish factors were stronger. Besides Covid-19, these also include OPEC, which is meeting tomorrow to discuss whether to stick to its plans of adding 400,000 bpd to global supply every month until it restores all production that was cut during the pandemic.
Reports emerged earlier this week that the cartel may be considering a change of tack, with the Kuwaiti oil minister telling Reuters, “The markets are slowing. Since COVID-19 has begun its fourth wave in some areas, we must be careful and reconsider this increase. There may be a halt to the 400,000 (bpd) increase.” A later report, citing three unnamed sources from OPEC+, said that the cartel was most likely to stick to its current arrangement, further pressuring prices.
Meanwhile OPEC has been pumping in August the highest volume of crude oil since April 2020, after the OPEC+ alliance agreed to ease the production cuts by 400,000 barrels per day (bpd) every month beginning in August, the monthly Reuters Survey showed on Tuesday. The 13-member-strong OPEC group has been producing 26.93 million bpd in August, an increase of 210,000 bpd compared to the estimated output in July, according to the Reuters survey of OPEC sources, sources at oil firms and consultants, and tanker-tracking data. Although OPEC continued to raise its oil production, the gain in August over July was lower than anticipated because of production and export outages in some member states.
The rise in OPEC’s oil production comes after the OPEC+ group decided on July 18 that it would start returning 400,000 bpd to the market every month beginning in August until it unwinds all the 5.8 million bpd cuts. The group agreed to extend the existing deal from April 2020 through the end of December 2022. The 10 OPEC members bound by the pact share 253,000 bpd of the 400,000-bpd monthly increase in OPEC+ production, according to OPEC numbers seen by Reuters. So, in August, the biggest producers of OPEC in the Gulf raised their oil production. Top producer Saudi Arabia added 180,000 bpd of supply, as per the Reuters survey.
This was the biggest increase among OPEC members. OPEC’s no.2 Iraq boosted exports, while the United Arab Emirates (UAE)—the holdout in the OPEC+ talks in July—raised its production by 40,000 bpd in line with its quota for August. Outages in Nigeria and Libya, however, limited OPEC’s supply to the market, according to the survey. Shell declared in mid-August force majeure on Forcados exports from Nigeria, which saw the largest decline in supply, 100,000 bpd. Libya, exempted from the OPEC+ cuts, also saw lower production in August due to a pipeline leak early in the month.