OPEC oil production cuts likely to continue for the ‘whole of 2020’: Wood Mackenzie


The oil market is “still not ready” to absorb OPEC’s production cuts, said Sushant Gupta,
a research director at Wood Mackenzie.

OPEC is aware of oversupply in the oil market for at least the first half of this year
and will have to manage that somehow, by either higher compliance or even deeper cuts, Gupta said.

He also weighed in on oil prices and possible black swan events for the market.

PEC is likely to continue with its oil supply cuts for the rest of 2020, a research director said Monday.

“One thing which we are seeing in our numbers is that the market is still not ready to absorb the production cuts back, even for (the) whole of this year,” Sushant Gupta, who heads Wood Mackenzie’s refining and oils market team in Asia, told CNBC’s “Capital Connection.”

“We expect OPEC to continue cutting production for 2020,” he said.

OPEC and its allies agreed in December 2019 to cut supply by an additional 500,000 barrels per day until its next meeting in March 2020, bringing the total reduction to 1.7 million barrels a day.

However, the duration of the deal remains uncertain. The energy alliance usually gathers every six months, so the announcement of a meeting in March caused some analysts to believe that tighter policy would only last for the first quarter of 2020.

Gupta argued that the additional cuts indicate OPEC is aware of oversupply in the oil market for at least the first half of this year.

“They will have to manage that oversupply somehow, by either higher compliance or even deeper cuts for (a) longer time,” he said.

He added that Wood Mackenzie expects oil supply to outpace demand for “the whole of 2020.” Part of that supply will come from non-OPEC, non-U.S. producers such as Brazil, Canada and Norway, he said.

“It’s more pronounced in the first half 2020 than the second half … but we expect (OPEC) to rollover production cuts for the whole of 2020,” he said.
Oil price forecast

Gupta also weighed in on oil prices in a “fundamentally oversupplied” market. “We expect prices to stabilize at around $65 per barrel for the first half of this year and around $64 per barrel for the whole year 2020.”

When asked about black swan events — rare and unpredictable occurrences with severe consequences — for the market, he pointed to geopolitical tensions in the Middle East and the ongoing U.S.-China trade war. Still, oil prices will “come back again” to the fundamentals, he said.

“Geopolitical events will continue to play a key part in 2020,” he said. “But … from the demand side of things, the U.S.-China trade dispute and overall health of the global economy will play an equally important part in keeping the prices in balance.”

—CNBC’s Sam Meredith and Pippa Stevens contributed to this report.

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Godwin Okafor is a Financial Journalist, Internet Social Entrepreneur and Founder of Naija247news Media Limited. He has over 16 years experience in financial journalism. His experience cuts across traditional and digital media. He started his journalism career at Business Day, Nigeria and founded Naija247news Media in 2010. Godwin holds a Bachelors degree in Industrial Relations and Personnel Management from the Lagos State University, Ojo, Lagos. He is an alumni of Lagos Business School and a Fellow of the University of Pennsylvania (Wharton Seminar for Business Journalists). Over the years, he has won a number of journalism awards. Godwin is the chairman of Emmerich Resources Limited, the publisher of Naija247news.

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