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Stankevicius International on Oil Market Brief: Saudi Aramco and ADNOC Q4 2020

Oil prices are expected to rise slightly in the Q4 of the year 2020, containing further gains due to a deep cooling in travel around the world and ongoing economic recovery. Analysts predict that the prices of Brent and West Texas Intermediate should rise to the minimum and average $ 40 per barrel, but they also see risks associated with a new drop in oil prices.

Energy giant Saudi Aramco reported a 25% drop in first-quarter net income due to low oil prices, saying the coronavirus crisis would reduce demand and profit for the year. The world's largest listed company posted net income of 62.5 billion riyals ($ 16.66 billion) in the Q1 of 2020, up from $ 22.2 billion a year earlier. The company said the drop in profits mainly reflects lower crude oil prices, as well as lower margins at refineries and chemicals.

John Kilduff, Partner with Again Capital, said, "Anyway, they are vulnerable to falling to $30. The oil market is hit hardest by Covid of any asset class, "Demand is simply not returning, especially for jet fuel." Oil prices had recovered from a crash earlier this year when the global economy stalled. Oil futures prices were even temporarily negative as the market reacted to a huge oversupply and a large drop in global demand. WTI futures fell below $40 to close at $38.71, down 3.9% amid coronavirus concerns and reports of OPEC production growth.

Saudi Aramco and ADNOC to increase oil production in 2020

Saudi Aramco will increase its production capacity by 8.3% to 13 million barrels per day after the collapse of the alliance between the Organization of Petroleum Exporting Countries and Russia (OPEC+).

The Abu Dhabi National Oil Company (ADNOC) also announced plans to increase oil supplies to over four million barrels per day starting in April 2020. He, Dr.Sultan Ahmed Al Jaber, CEO of the ADNOC Group, said: "In line with our strategy for the growth of production capacity has been announced. According to the Supreme Petroleum Council, in April we can deliver more than four million barrels per day to the market. In addition, we will accelerate our planned capacity of five million barrels per day."

The pledge to increase production follows pledges from Saudi Arabia and Russia to increase supplies following the collapse of OPEC+ talks last week, sparking a "pump-up" race after the alliance's current supply agreement ends this month. In a statement from the stock exchange, Saudi Aramco announced that it had received a directive from the Department of Energy to increase its maximum sustainable capacity from 12 million barrels per day to 13 million barrels per day.

Saudi Arabia has more spare capacity than Russia, and this cushion has long allowed it to play a dominant role among producers. Increasing supply during periods of scarcity could soften price spikes, and the Kingdom is now demonstrating that they can use this power to put financial pressure on other producers.

According to Analysts, Oil prices are expected to rise by just a few dollars a barrel in the fourth quarter, and OPEC and its partners may have no alternative but to continue their sharp production cuts to support the market. Reduced air travel and warm winters could put pressure on distillate fuels, an important source of oil demand. "The oil market is hit hardest by Covid of all asset classes.