Tuesday, January 31, 2017

This week, that crude year!

With the oil price barely moving from its current $50 per barrel circa, it’s worth looking back at how the market panned out in 2016.

In fact this week, that year we grappling with sub $30 prices and threatening to go lower. That's when OPEC initiated chatter of a production cut around February, before eventually executing it much later in the year on November 30, and bringing 11 other non-OPEC producers, especially the Russians, along for the ride. (Click to enlarge chart)

The uptick in the wake of the ‘historic’ agreement saw crude prices bounce to where they currently are and no further. So taking the 12 months of 2016 as whole, Brent began the year at around $37.28, flirted briefly with sub-$30 prices and ended the year at $56.82; a gain of 52.4% between the first and last full trading Fridays of 2016.

Concurrently, the West Texas Intermediate rose from $37.04 to $53.72; a gain of 45% between the first and last full trading Fridays of 2016. The Oilholic acknowledges that percentages are relative, but would be astonished if 2017 ends in similar gains. That’s all for the moment folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2016. Graph: Oil benchmarks - Friday closes for 2016 © Gaurav Sharma.

Friday, January 13, 2017

‘Crude’ recollections of a former OPEC bigwig

For over two decades, every word Ali Al-Naimi uttered was lapped up by the oil market. It wouldn’t be otherwise, if you were the oil minister, as he once was, of OPEC heavyweight Saudi Arabia between August 1995 and May 2016.

So when Al-Naimi’s memoir – Out of the Desert: My Journey from Nomadic Bedouin to the Heart of Global Oil – appeared on the horizon barely a few months into his retirement, global headlines were all but guaranteed, especially at a time of extreme volatility and a once in a generation market dynamic shift in the global crude world.

Yet, before the world got to know Al-Naimi as the oil market heavyweight, there was the nomadic shepherd boy born of humble beginnings in Eastern Arabia who dreamt of making it big.

In a memoir of over 300 pages, split by 19 chapters, Al-Naimi recounts his extraordinary journey, from an office boy in 1947 at oil company Aramco, to the CEO’s chair in 1988 of the then state-owned Saudi Aramco.

Al-Naimi’s recollections send the reader alternating from human interest sentiment to hard core global geopolitics, inner workings of the oil industry to the deals in the corridors of power, corporate decisions to political manipulation. There’s a bit of everything, and more of what you would come to expect of a global political figure. Afterall, power, politics and that precious natural resource called oil go hand in glove.

Having interacted in a journalistic capacity with Al-Naimi at several OPEC meets prior to his retirement, I often heard the industry veteran quip that in his career he had seen the oil price drop to as low as $2 and climb as high as $140 a per barrel. This book will help you get some perspective.

Even before it hit the shelves, media outlets as diverse Forbes, Bloomberg and the International Business Times, were writing news stories based on excerpts from it in a bid to take Al-Naimi’s thoughts and help them decode, how for instance talks between OPEC and non-OPEC oil producers would pan out.

From OPEC’s traditional mistrust of Russia, to everyone in the oil business looking at the Saudis to cut, Arab oil embargo to the collapse of Lehman Brothers, Al-Naimi has catalogued implications of such events for the oil market. For instance, Al-Naimi claims that in a situation akin to the crisis of demand seen in 2008-09, when the 2014 supply glut crisis hit, everyone expected the Saudis to act but offered no help with sharing the burden.

An already brilliant narrative is enhanced by a peppering of market anecdotes previous unheard of which the Oilholic enjoyed reading. The book’s appeal is universal. That said students of history, oil industry observers, industry analysts and geopolitics enthusiasts ought to regard it as a must read.

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© Gaurav Sharma 2017. Photo: Front Cover – Out of the Desert: My Journey from Nomadic Bedouin to the Heart of Global Oil By Ali Al-Naimi © Penguin Publishers, 2016.

Sunday, December 25, 2016

Merry Christmas & a few crude notes!

Yes! Its that time of the year to wish you the dear readers of this blog the joys of the season and a very Merry Christmas, as another eventful year comes to a close. The Oilholic has been busy these past few weeks scribbling one's crude notes on oil market affairs for the International Business Times UK and Forbes

For starters, here is this blogger's take on US President-elect Donald Trump's nomination of ExxonMobil CEO Rex Tillerson as his Secretary of State

When the news emerged, as usual there were oversimplifications in the media, saying the nomination had much to do with Tillerson being close to Russian President Vladimir Putin. However, the Oilholic believes there's much more to the appointment; Tillerson for intents and purposes would be a formidable top US diplomat, not just Putin's mate. 

Additionally, here is one's commodities market year-ender, and some predictions on gold, silver and of course crude oil for 2017. Finally, here are some reasons - as outlined on Forbes - for why methinks the oil price might not rise further beyond $60 per barrel in 2017, as there is limited upside to such an an occurrence over the next 12 months. 

That's all on Christmas day folks! Keep reading, keep it Christmasy and 'crude'!

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© Gaurav Sharma 2016. Photo: Christmas tree at Rotterdam Station, The Netherlands © Gaurav Sharma.

Thursday, December 01, 2016

The crude question of post-OPEC compliance

The ministers have left town having announced OPEC’s first real-terms headline oil production cut in eight years, sending oil futures rocketing intraday by over 8%. Now that the Oilholic has gathered his thoughts, one feels the significance of such a move cannot be understated, but overstating carries perils too.

Starting with former point first; describing the announced cut of 1.2 million barrels per day to 32.5 million bpd as ‘historic’ is about right. For starters, after many years, OPEC proved that it can get its act together, set aside political differences and come up with a cut. Admittedly, bulk of the production cut would come from Saudi Arabia, which would shoulder 486,000 bpd in cuts. 

However, willingness to participate came from across the OPEC board, with Iran also promising to temper its expectations rather than keep banging on about its stated ambition of hitting a production level of 4 million bpd. Furthermore, Indonesia, a net oil importer, unable to partake in the cut, suspended its membership, although truth be told it was farcical for it to have come back to OPEC last year. 

Additionally, at least on paper, OPEC has managed to extract concessions from non-OPEC producers as well, chiefly Russia. It seems we will see around 600,000 bpd of non-OPEC cuts, of which Russia would account for 300,000 bpd. The market awaits further details after an imminent meeting between the Russians and OPEC takes place, but it all seems positive for now. 

That said the crude world should temper its expectations. Announcing a production cut is one thing, getting OPEC and non-OPEC participants to carry it out is a different thing altogether. If one or more members fail to comply, the domino effect could be others going down the non-compliance path too. In a first of its kind, OPEC has set up a monitoring committee comprising of Algeria, Kuwait and Venezuela to keep tabs on the situation – and it has its work cut out. 

Of course, OPEC has no way of policing non-OPEC compliance and past experiences of extracting concessions from Russia haven’t really worked. We’ll know soon enough when data aggregators such as S&P Global Platts and Argus report back on cargo loadings in January and February. The events in Vienna will support the price for sure over the medium term – lifting it to the $55-60 range. However, what that does is support the US shale industry too. 

Of course, the projected price uptick is unlikely to drag US production levels to the dizzy heights of 2014, but the market should now brace itself for additional barrels from North American producers. Finally, before one takes your leave, here is some additional analysis in the Oilholic's latest Forbes post. With those crude thoughts, that’s all from Vienna folks. Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2016. Photo: OPEC building exterior, Vienna, Austria © Gaurav Sharma, November 2016.

Wednesday, November 30, 2016

OPEC agrees output cut of 1.2m bpd to 32.5m bpd

OPEC has agreed to cut production by 1.2 million barrels per day (bpd) to 32.5 million bpd at the conclusion of its 171st meeting of ministers. If carried out from January, this would be its first cut in eight years.

The oil futures market, which registered a slump of 4% overnight, rallied in response registering a rise of over 8%. 

However, the crude reality is that much of the above cut - i.e. 486,000 bpd - will come from the Saudis. As the Oilholic's report for IBTimes UK outlines, others will pitch in too. OPEC also said it would be counting on 600,000 bpd of non-OPEC cuts, bulk of which would come from Russia. That's where the real riddle is. What sort of compliance will we see from Russia? 

Furthermore, what about internal compliance within OPEC?  Mohammed Bin Saleh Al Sada, Qatar's Minister of Energy and Opec President, said a ministerial monitoring committee chaired by Kuwait, along with Venezuela and Algeria would be established to monitor the cuts.

Al Sada also described the decision as "historic" adding that: "We have no regrets about not having cut production in the summer of 2014. Opec has reacted to current oil market realities in taking this decision and delivered on what we agreed in September [at the International Energy Forum in Algiers]. 

More from Vienna shortly folks, once yours truly has digested this crude bit of news! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2016. Photo: Mohammed Bin Saleh Al Sada (left), Qatar's Minister of Energy and Opec President unveils an oil production cut of 1.2m barrels per day at the conclusion of its 171st meeting of ministers' in Vienna, Austria on 30 November, 2016. © Gaurav Sharma, November 30, 2016.

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