The oil markets are not “out of the woods” just yet, OPEC’s Secretary General Mohammad Barkindo told a virtual panel organized by the Canada-UAE Business Council, cited by The National.
The UAE’s Energy Minister Suhail Al Mazrouei, also on the panel, echoed the sentiment, saying that the oil industry was “still in the woods.”
The sober statement comes even as OPEC has taken unprecedented action to draw down global oil inventories.
“One of the major concerns of the industry was that as a result of the double shock on supply and demand, the industry was going to exhaust storage capacity, both onshore and probably offshore,” Barkindo said, after oil prices crashed in April as lockdowns stymied demand and taxed available storage constraints all over the world—both onshore and offshore.
Barkindo added that had the available storage capacity been allowed to be exhausted, the oil markets would have headed toward a “total crush.”
Barkindo said that according to preliminary numbers, the total inventory build in the region was 1.3 billion barrels above the five-year industry average, compared to 403 million barrels above the five year average during the last oil market downturn between 2014 and 2016.
Back then, Barkindo added, it took four years to drawdown the oil inventories back to the five-year average.
This time around, the measures OPEC is taking to drawdown the inventories are more dramatic, as the group pledged to cut its production across May and June, and then again in July. But compliance to the production quotas are still just 87%, thanks to laggards such as Nigeria and Iraq, who have promised to make up for any overages after the rest of OPEC has completed their production cuts at the end of July.