Friday, December 06, 2019

OPEC+ announces deeper cuts of 500kbpd

It's official - OPEC+ has decided to "deepen its cuts" by ~500,000 barrels per day (bpd), thereby upping its output reduction from 1.2 million bpd, 1.7 million bpd.

And if the new chief OPEC powerbroker Prince Abdulaziz bin Salman is to be believed, and every participant well...err....participates, the market could well be looking at a real terms cut of 2.1 million bpd. 

That is wishful thinking and will be severely tested as the Saudis say OPEC+ compliance would be keen monitored. To this effect, OPEC will have an extraordinary meeting of ministers in March 2020, on top of its regular meeting in June. 

For its part Saudi Arabia will up its cuts "voluntarily" to 400,000 bpd (+167,000 bpd) bringing its headline production down to 9.744 million bpd. Errant Iraq has promised to cut 50,000 bpd. Nigeria, Libya and Iraq remain exempt, but Nigerian Minister Timipre Marlin Sylva said his country would be cutting production "voluntarily."

There seems to be no shortage of volunteers. Here are two other key quotes:
  • "Signal we want market to take is that we are collectively showing readiness to rebalance the market, prevent heavy inventory buildup in Q1 2020," - Abdulaziz bin Salman.
  • "Russia wants to avoid any oil market turbulence in 2020. We are not concerned with US shale, seeing signs of shale slowdown," - Russian Oil Minister Alexander Novak. 

Finally, the Saudi Minister sounded pretty peeved about getting a "battering from the media" about the Saudi Aramco IPO, adding that the company's valuation would hit $2 trillion very soon. And that's that; more composed thoughts upon the Oilholic's return to London, but that's all for the moment from OPEC folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2019. Photo: Saudi Oil Minister Abdulaziz bin Salman speaks at the conclusion of the OPEC+ meeting in Vienna, Austria © Gaurav Sharma December 6, 2019.

Late one to early crude commotion at OPEC

So after having kept analysts and media in the OPEC Secretariat almost till midnight, and then not issuing a final brief, the producers' group has started day two with its planned OPEC and Non-OPEC meeting of ministers. 

The figure of a 500,000 barrels per day (bpd) deepening of the cuts remains on the cards, but whether it is a paper adjustment or a real-term cut remains to be seen. 

Even before proceedings began, Iranian Oil Minister Bijan Zanganeh left the meeting, with there being little sense in his sticking around given Tehran is exempt from the cuts. 

However, he did quip to journalists on his way out that the deal being brokered is indeed a "fresh cut". Inside the meeting hall, Russian Oil Minister Alexander Novak said the OPEC and non-OPEC agreement was working despite doubts expressed by sceptics, and his Saudi counterpart Abdulaziz Bin Salman asked for the "faith and mercy" of analysts and market commentators so that they don't "twist" numbers put out by OPEC+. (Yup, he really did!)

The oil market will have to believe OPEC+, and objective as well as cynical analysts will have to trust them, he added. Felt more like a sermon, and less like a statement, but hey - whatever works. More drama from here later in the day. But that's all for the moment folks! Keep reading, keep it 'crude'! 

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© Gaurav Sharma 2019. Photo: OPEC and Non-OPEC Meeting Room, Vienna, Austria © Gaurav Sharma, December 2019. 

Thursday, December 05, 2019

Saudi Aramco IPO price set at SAR 32 ($8.53)

Finally, finally, finally - the Saudi Aramco IPO price has been set - at SAR32 ($8.53) per share. That means the company would raise ~$29.4 billion. Here's the final communique from the company that's just landed in the Oilholic's mailbox (click to enlarge image). 


That means the company will raise $29.4 billion, and get a valuation of $1.7 trillion. It's well shy of the $2 trillion valuation craved by Crown Prince Mohammed Bin Salman. However, its still now the world's largest IPO in history and this blogger heard it while sitting in the OPEC media briefing room at 8pm in Vienna!! Bring in the noise.

On OPEC discipline & deepening cuts

The Oilholic is back in Vienna, Austria for the 177th OPEC Ministers' meeting and their (now) regular haggling with 10 Russian led non-OPEC producers who've signed up to a collective cut of 1.2 million barrels per day (bpd).

With the cuts set to expire in March and the oil price nowhere near $70 per barrel using Brent as a benchmark, there is chatter here of deepening the cuts.

Ironically, these are being flogged to the media and analysts by Iraq; the one OPEC member that has hardly complied with its share of the cuts. However something is definitely afoot at Helferstorferstrasse 17. The reasons being a paucity of leaks, few unscheduled remarks, Iranians keeping mum despite being tetchy, and the media / analysts not being allowed "access to ministers" before their opening remarks to the conference, i.e. no "gang bang", only a "speech listening" at more than an arm's length. 


From that has emerged the "deepening of cuts" figure of 500,000 bpd. Of course, no details have been provided, especially on the level of Russian compliance. Apparently the likes of Nigeria and Iraq would be squeezed to fall in line too, according to the rumour mill.

What's more is this 500,000 bpd cut a "paper adjustment" with compliance current over 140% or is the cut being upped to 1.7 million bpd? Not too sure, not convinced as convincing answers are not forthcoming.

And will that even work? The Oilholic seriously doubts it; simply because 2-2.5 million bpd of non-OPEC supply growth is expected next year, and there are deep rooted concerns over demand, as noted on Forbes. Still the OPEC show goes on, and we'll probably have some finality after the OPEC+ meeting concludes tomorrow (Dec 6). 

That's all for the moment from Vienna folks, but there's more to follow. Keep reading, keep it 'crude'!

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© Gaurav Sharma 2019. Photo: Media briefing room at OPEC's 177th Ministers' Meeting in Vienna, Austria on December 5, 2019 © Gaurav Sharma, 2019

Saturday, November 30, 2019

Oil market in wait & see mode ahead of OPEC

The next OPEC+ ministers' meeting on December 5-6 is upon us, and the Oilholic's reading of the past few weeks does seem to suggest the oil market is in a holding pattern. More so as there has been little by way of resolution of the ongoing US-China trade spat. 

For many intents and purposes, trade concerns remain the key market driver, perhaps making OPEC a bit of a non-event. A rollover of the OPEC+ agreement - that has kept 1.2 million barrels per day of production - out of the market has already been priced in. So the only surprise to the upside would be if the producers' group introduces even deeper cuts; a scenario that on paper appears to be highly unlikely. 

Meanwhile, excluding a short-lived spike in the wake of the drone attack on Saudi Aramco, oil prices, using Brent as a benchmark, have largely remained range-bound at lower $60 per barrel levels oscillating between $58-$65 (see chart above left, click to enlarge). . OPEC's basket of 14 crude oils meanwhile is averaging just shy of $64 at the time of writing (see chart left, click to enlarge). 

While the OPEC meeting would be interesting from the standpoint of soundbites, this blogger is not holding his breath out for any substantial price movement. Continuing with the markets theme, yours truly also made several observations from the recently concluded ADIPEC in Abu Dhabi, for various publications, including OPEC's ongoing dilemma for Forbes. There's also the issue of oil demand, and while attention has been focussed on how the US-China trade spat is impacting it, here's the Oilholic's take on whether, and by how much, the proliferation of electric vehicles could stunt demand growth

Plenty of words were penned on the Aramco IPO too, but here's a piece - via Rigzone - on how Brit oil majors Shell and BP are attempting to add long-term value for shareholders. Additionally, here are the Oilholic's recent Forbes reports on ADNOC upping its digital drive and India's wooing of global energy investors as its energy demand continues to rise

Finally, here is the Oilholic's missive on another piece of industry process efficiency and optimisation kit that has just been successfully tested by ABB in waters off Vaasa, Finland. The global software industrial giant claims to have found the "holy grail" of offshore subsea power solutions via its joint industry project with Chevron, Equinor and Total.


Its latest power distribution and conversion technology system for energy companies will be able to provide a reliable supply of up to 100MW of power, over distances up to 600km out at sea and down to a whopping 3,000m water depth. 

ABB claims the system will need "little or no maintenance for up to 30 years following deployment" making oil and gas production feasible in far out and deep ocean environments. It'll be interesting to see the take up of the kit, and company sources have promised to update the market on a regular basis. 

And on that note, its time to end this blog post leaving you with a view of the waters of the Gulf of Bothnia, from Kalle's Inn, Finland (above right, click to enlarge);  a popular spot near Vaasa that the Oilholic visited before heading back home. From here you can catch the Northern Lights, maybe even rent one of the waterfront cabins for the night. That's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2019. Graph I: Brent futures 3-month movement © BBC. Graph II: Average price tracker of OPEC crude oils basket. Photos: View of Gulf of Bothnia from Kalle's Inn, Finland © Gaurav Sharma 2019.

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