Showing posts with label OPEC summit. Show all posts
Showing posts with label OPEC summit. Show all posts

Friday, March 06, 2020

OPEC+ in waiting mode as Russia plays hardball

Overnight (March 5) OPEC ministers met and proposed a deepening of existing oil production cuts by 1.5 million barrels per day (bpd) to their Russia-led OPEC+ partners in an effort to calm the oil market following the coronavirus outbreak and its devastating impact on the global economy.

While the original 'deepening of cuts' proposal was set to last until end-June 2020, OPEC heavyweights met yet again late yesterday evening and announced the proposal would be extended to the end of 2020. 

The burden of 1.5 million bpd, would be shared as 1 million bpd and 0.5 million bpd between OPEC and non-OPEC players respectively. From a headline perspective, if approved the market would be looking at 3.2 million bpd of OPEC+ barrels being taken out of the global supply pool. 

With that the ball went into the Russian court, and that's where it has been since well into today (March 6). In that time, Russian Oil Minister Alexander Novak has gone and returned from Moscow, and an OPEC+ closed-door meeting scheduled to start at 9:30 CET, has yet to get going 14:20 CET!

And the Oilholic has putting his scenarios to colleagues in the broadcast media. 

In one scenario, Russia could say 'nyet' and you'd see bearish headwinds engulf oil futures and driving the price down to $30 per barrel. 

In another scenario, the mammoth cut would proceed providing only temporary relief to oil prices given the full extent of the coronavirus' demand destruction is yet to be clear. Although, Wall Street is belatedly, finally coming to terms with the magnitude of the destruction having ditched its complacency.

Finally, often the favourite colour at these OPEC meetings based on the Oilholic's past experience is grey. OPEC+ could emerge and offer a good old fashioned figures fudge involving OPEC cuts with the support of the Russians, and other non-OPEC players, with very few barrels to show for it. This too will either provide negligible or short-lived support. 

All of this bottles down to one thing - hardly anyone has an accurate handle on where oil demand is going, and the Oilholic believes there will be shrinkage on an annualised basis. Were that to be the case, a 'crude' logic applies - oil supply cuts never really solve a crisis of demand. It's where crude market presently is. OPEC can improve its odds via a cut but can do little more!

And on that note its time to leave Vienna for London, and then on to Houston, all the while keeping an eye on events here. But that's all for the moment folks. Keep reading, keep it 'crude'!

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© Gaurav Sharma 2020.

Monday, November 12, 2018

On crude 'slumps', 'spikes' & predictable ranges

Over the last 12 months we've heard of oil price spikes and slumps, ups and downs, four-year highs and six-week losing streaks, and exaggerated predictions of $100 per barrel crude prices, being made by those prone to making them and then getting them spectacularly wrong. 

Yet, as the Oilholic hears Saudi Oil Minister Khalid Al-Falih [suggest a 2019 OPEC production cut might be on the horizon] on TV while sitting in a hotel room in Altanta stateside, the inescapable fact is that Brent, WTI and OPEC's own basket price of crude oil(s) exported by its members remains as range-bound as ever (see graph, click to enlarge). 

Whichever way you look at it - all year the price has fluctuated within a $60-80 per barrel range. You can come up with all sorts of fancy, creative explanations about it, as both the bulls and bears have, but the market is where it is because the physical traders are at peace with the supply demand and dynamic as it stands. 

While speculators and money managers, especially hedge funds, might pile into the market at the slightest sign of an uptick in the hope of extending the rally, physical traders (at least the ones the Oilholic is in contact with in Amsterdam and Shanghai) aren't exactly sweating while looking at their solver models that point to no scarcity of supply. 

Given that dynamic, paper market panics don't last long as recent weeks and months have proven. End result - everyone from Morgan Stanley to RBC Capital Markets, and all the so-called price prophets in between, are scrambling to downgrade their oil price forecasts. Some have even gone to the other extreme predicting $40 per barrel oil prices, and that won't happen either. 

Using an aggregate of global demand growth from various data sources (OPEC, EIA, IEA) and squaring it against global supply (as it stands) - the oil price will likely remain range-bound in the $60-80 bracket. So keep calm and carry on! That's all for the moment folks. The Oilholic needs to head out and brave the rain in Altanta, more from here later. 

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© Gaurav Sharma 2018. Graph: Friday closes of oil benchmarks (Jan to YTD 2018) © Gaurav Sharma 2018 

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.