Of soundbites and buffer crude producers

If sounbites were the sole influencers of the oil market direction, Brent ought to be near $60 per barrel. (see chart on the left, click to enlarge) 

The fact that it isn’t, and couldn’t be any further from that promised level despite OPEC cuts tells you that verbal quips from oil producers matter little when the market is trying to readjust to a new normal; i.e. the impact of a buffer producer in the shape of the US of A.  

When OPEC and 11 non-OPEC producers came together last December to announce a headline production cut of 1.8 million barrels per day (bpd), it was done in the knowledge that inevitably US shale producers would benefit from higher prices too. 

However, the economic paradox of that was additional US barrels replacing barrels taken out by the OPEC and non-OPEC agreement. In March, Saudi Energy Minister Khalid Al-Falih ensured that the OPEC put unravelled by quipping that his country would not subsidise non-OPEC margin plays by supporting an extension of the OPEC and non-OPEC agreement, due to expire in June. 

The result was a near instantaneous drop in both benchmarks as the market factored in the possibility of more OPEC barrels. Soon thereafter, on witnessing the ensuing oil price slide, ministers of several OPEC member nations, including Al-Falih himself, issued soundbites claiming an extension to the cut was in fact possible. However, in the Oilholic’s humble opinion, the damage had already been done by that time. 

This blogger's interaction with the wider market – whether we are talking spot or futures traders – leads one to believe that sentiment is in favour of higher US production, with each OPEC and non-OPEC barrel taken out of the market subsidising an American barrel. Of course, it’s not as linear or simple but the market’s reasoning isn’t flawed.  

All OPEC soundbites in favour of extending the cartel’s cut further are fuelling such sentiment further. Should OPEC extend its cut, the artificial support to the oil price would again be short-lived, as US barrels will continue to flood into the market. 

Finally, the Oilholic believes the market is showing signs of rebalancing unless it is artificially tampered with, and there could be some semblance of normalcy by September-end. So as such neither is an OPEC cut needed nor are the soundbites in its favour. Perhaps the cartel might consider keeping mum for a change! That's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2017. Graph: Oil benchmark prices year to date © Gaurav Sharma 2017.

Two Forbes posts on very different matters

Dear readers, it has been an exceptionally busy month of April courtesy travel, speaking engagements and IBTimes UK affairs that have kept the Oilholic severely occupied to the near blasphemous point of ignoring this blog! Sincere apologies! However, one did pen thoughts down on two key matters via regular posts on Forbes. 

Earlier this month, petrochemical giant Ineos bought the UK's North Sea Forties pipeline system from BP. Obviously, its huge for Ineos which would have control of 40% of UK's oil and gas output, but the development is also indicative of a strategic shift of oil majors away from mature prospects to emerging ones. (Read more here). 

The second key matter is US President Donald Trump’s recent airstrikes on Syria, Afghanistan and his dispatching of an aircraft carrier group to the Korean Peninsula to square up to a belligerent North Korea and in defense of the South. As safe-haven asset prices soared, Brent has also marched back up to $55 and WTI back above $50. Go long if you want to, but the rally won't last - there's still too much oil in the system. (Read more here). 

That's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2017.

CERAWeek 2017 ends & so does the 'OPEC put'!

It’s a wrap from CERAWeek 2017, with Canadian Prime Minister Justin Trudeau telling his high net worth Houstonian audience assembled by IHS Markit, that no country would leave 173bn barrels of oil - as Canada has – in theground.

The Oilholic wonders if his ‘crude’ words would have been quite as forthcoming if he was surrounded by tree huggers in British Columbia. 

Nonetheless, as Trudeau says, it is all about tapping the tar sands ethically and responsibly, now that US President Donald Trump has approved the long-delayed Keystone XL pipeline. Away from all the public relations mumbo-jumbo of the Canadian Prime Minister, it looks like the OPEC put, OPEC & non-OPEC price floor of $50, call it what you will is now over.

That’s after Saudi Energy Minister Khalid Al-Falih warned the oil market not to take Riyadh’s support for granted. Here are The Oilholic’s thoughts in a detailed post for Forbes. Despite long bets by money managers, such calls appeared bereft of clear thinking, and were solely predicated on Opec rolling over its cuts beyond June, despite US producers cashing in on it.

Since Al-Falih’s quip included “we will not bear the burden of free riders” the market took notice, and WTI fell the most among benchmarks, breaching the $50 floor for the first time in 2017 as the number of operational US rigs continues to rise.

Away from the oil price, yours truly had a fascinating conversation on behalf of the International Business Times UK with Vimpar Kapur, President of Honeywell Process Solution (the multinational conglomerate’s automation unit). 

Kapur opined that process efficiencies in the oil and gas business are likely togather further momentum over the next 12-18 months as the crude world gets used to a $50s oil price. And that’s all from Houston folks! It’s been a fascinating week, but it’s time for that parting selfie, and a brief trip to Canada before the flight home to London. Keep reading, keep it ‘crude’!

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Schneider Electric, BP exclusives plus waiting for Trudeau's keynote address

Another intense few days have zipped by at CERAWeek 2017, with end of the week in sight as The Oilholic awaits the keynote speech of Canadian Prime Minister Justin Trudeau! 

Feels like the right time to reflect on the past few days. Early on March 7, Saudi Energy Minister Khalid Al-Falih took centerstage warning the oil market not to get ahead of itself.

"Don't believe in wishful thinking that Opec would underwrite the investment of others by perennially supporting the market. Saudi Arabia has cut production by more than what we promised [in December 2016], but we will not bear the burden of free riders," quipped the man from Riyadh.

He also joked that while the global oil industry was witnessing green shoots of recovery, Saudi Arabia was "moderating the watering" of those shoots and dismissed suggestions of peak oil demand. (Full report here)

Al-Falih was followed by Ryan Lance, CEO of ConocoPhillips and BP's CEO Bob Dudley who opined they were mentally prepared for a $50-60 per barrel oil price. Of course the market didn't get that memo and the WTI has since fallen below $50. 

On March 8, Total CEO Patrick Pouyanné expressed hope ex-oilman Rex Tillerson will help Trump 'see reason' on Iran, and said for the moment his company was on course to invest there. Many CERAWeek delegates expressed a view that LNG prices will remain in check until 2019/2020 courtesy of abundant oil supplies, as did Moody's. (Report here)

And finally, yours truly bagged two exclusives for IBTimes UK with the CEO of Schneider Electric Jean-Pascal Tricoire and BP's Global Head of Upstream Technology Ahmed Hashmi. Plenty more to come from CERAWeek, including a good few exclusives, but that's all for the moment folks. Keep reading, keep it 'crude'!

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To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2017. Photo: IHS CERAWeek 2017 awaits arrival of Canadian Prime Minister Justin Trudeau in Houston, Texas, USA © Gaurav Sharma.