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An aerial drone view of a crude oil storage facility on April 23, 2020 in Cushing, Oklahoma.
Tom Pennington | Getty Images
Oil markets are re-balancing after a collapse in demand following the coronavirus outbreak but the pathway to “the next normal” is still very uncertain, the CEO of Abu Dhabi’s National Oil Company (ADNOC) said Thursday.
“There are good signs that the market has tightened in recent weeks and the OPEC++ agreement, voluntary cuts outside of OPEC and the production shut-ins are working together to start to rebalance the market,” UAE Minister of State and ADNOC Group CEO Dr Sultan Al Jaber said, alluding to a group of countries that includes OPEC members and other systemically important producers such as Russia.
“As economies begin to open up, demand will follow, but the path to the next normal will not be a straight line,” he added. Al Jaber was speaking to Helima Croft, Managing Director and Global Head of Commodity Strategy at RBC Capital Markets, in a recorded interview via Linkedin on Thursday.
The coronavirus pandemic has dealt a severe blow to economic activity around the globe and sent oil prices tumbling by over 50% so far this year. While OPEC and its oil-producing allies finalized a historic agreement last month to cut production by 9.7 million barrels per day beginning May 1, some experts reckon that the reduction in supply won’t be enough to offset the diminution in demand.
ADNOC is a critically important OPEC member producer. The company achieved sustainable production of 4 million barrels of oil per day in April but scaled back output in line with the recent OPEC+ agreement.
The OPEC group next meets on June 10 to discuss the state of the market and the progress of the output agreement.
Green shoots are emerging in the oil market
Oil prices have been lifted this week by more signs that oil output is falling among OPEC and other major producers, and a gradual recovery in demand is underway.
“We are seeing massive cuts in output from countries outside the OPEC+ agreement and faster than expected,” the International Energy Agency said in a report on Thursday. The report also said “the gradual relaxation of restrictions on movement is helping demand.”
But the outlook remains cautious, with experts at the IEA questioning “whether governments can ease the lockdown measures without sparking a resurgence of Covid-19 outbreaks,” and “whether a high level of compliance with the OPEC+ agreement will be achieved and maintained by all the major parties.”
Economic flame out forces ADNOC to focus on costs
The economic impact of the pandemic has reverberated across the word. The oil industry in particular has been hurt badly as transportation has ground to a halt due to millions of employees staying at home, denting demand for energy in the process.
“We are in uncharted territory,” Al Jaber said, referring to the global economic collapse caused by the coronavirus pandemic. “We have never before experienced a time when the level of economic activity has dropped off this far and this fast.”
“Right now, no one is in a position to predict exactly what a recovery could potentially look like,” Al Jaber said. “Most economists agree that a recovery would be more U shaped than V shaped,” he added.
Al Jaber also said ADNOC is in a stronger and better position to manage current market dynamics than before, having undergone significant transformation in recent years to reduce costs.
“We have been laser focused on being one of the lowest cost producers in the world, and this has given us the flexibility and resilience that we need at times like these,” Al Jaber said.
“In this environment, we are continuing to work even harder to preserve our resources, drive more efficiency, optimize, and maximize our profitability,” he added.