Opec+ has agreed to boost oil supply in a positive sign for the tanker market after Saudi Arabia and the United Arab Emirates hashed out a compromise.
From August to December, the group will increase production by 400,000 barrels per day (bpd), adding a total of 2m bpd to global supply by the end of the year, Opec said in a statement.
As part of the agreement, members of the Opec+ group, including the United Arab Emirates, Saudi Arabia, Russia, Iraq and Kuwait, will all be awarded higher production baselines.
Saudi Arabia and Russia will see their baselines rise to 11.5m bpd each from the current 11m, while Iraq and Kuwait will see their baselines rise by 150,000 bpd each.
The UAE will see its baseline production, from which cuts are being calculated, increase to 3.5m bpd from May 2022 from the current 3.2m bpd.
Anoop Singh, head of east-of-Suez tanker research at Braemar ACM Shipbroking, said the adjustment of production to new baselines from May 2022 is good news because most of the increase in Saudi, UAE and Kuwait baselines will feed VLCC liftings.
Overall a good outcome and one that supports our view that owners are likely to have a profitable winter.
Anoop Singh, Braemar ACM Shipbroking
“Until then, the 400,000 bpd increase per month means about 2m bpd more output between now and the year-end,” he told TradeWinds.
“This is positive for tankers going into the second half of the year when refinery throughput by the end of the year will by 3m bpd higher, increasing crude imports.
“The agreements also means lower oil prices and less draw of crude from stocks. Overall a good outcome and one that supports our view that owners are likely to have a profitable winter.”
Brent crude fell in early Asian trading on Monday, while West Texas Intermediate also slipped on the news. Tight supply had pushed oil prices to the highest level in three years.
OPEC said it is likely to adjust its policy if and when Iranian oil returned to the market if the country reached a deal with world powers over its nuclear programme.
Iran is estimated to be able to add some 1.5m bpd to global supply once a deal is reached and US sanctions are lifted.
The introduction of 400,000 bpd in additional monthly supply is expected to add around 25 VLCCs worth of equivalent demand by the end of the year, a welcome sign for crude tanker owners, according to McQuilling Partners.
However, despite this demand optimism, the US brokerage remained cautious on the trajectory of crude tanker earnings as vessel supply forecasts show approximately 11 VLCCs delivering, and another 10 to 15 unwinding from storage operations over the next six months.
The International Energy Agency estimates a 1.5m bpd shortfall for the second half of this year, indicating a tight market despite the gradual Opec supply boost.
The next Opec+ meeting is due to be held on 1 September 2021.
