Thursday, December 19, 2019

Post OPEC quips & LatAm, Shale outlook

The Oilholic returned from the OPEC+ ministers’ summit in Vienna, Austria to a crazy few weeks of crude chatter and of course umpteen discussions on the Saudi Aramco IPO.

Here are yours truly's thoughts on the final communiquĂ© from OPEC via Forbes, and another take on the Aramco IPO via the same publication plus a ReachX podcast touching on the issue of the company's valuation kerfuffle.  

Away from it all, two pieces of research caught one's eye this month. Starting with the first of two, rating agency Moody's reckons 2020 will be a stable year for the Latin American oil and gas sector. While, global economic environment and trade disputes could become a concern to Latin America's commodity exporters, including those in the business of black gold and natural gas, Moody's opined that many regional players have indeed improved their capital structures. 

"Business conditions will vary in 2020, contributing to stable overall conditions. A shift toward exploration and production favours credit quality for Brazil's national oil company Petrobras, but 2020 production appears stable at best in Mexico as investment stalls," says Moody's Senior Vice President Nymia Almeida.

Mexico investment momentum in oil and gas is negative for 2020 as national oil company PEMEX has limited ability to increase investments and deliver on production and reserves targets, Almeida added. 

Away from Latin America, Rystad Energy predicted that even with potentially lower prices, the production outlook for North American shale "appears robust" in the years ahead.

In Norway-based analysis firm's base-case price scenario - that assumes a WTI price at $55 per barrel in 2019; $54/bbl in 2020; $54/bbl in 2021 and $57/bbl in 2022 - would see North American light tight oil supply will reach 11.6 million barrels per day (bpd) by 2022. 

This implies a compound annual growth rate (CAGR) of 10% from 2019 to 2022. In a price scenario with the WTI oil price remaining flat at $45 per barrel, supply of the same would plateau at 10.1 million bpd towards 2022.

"The flat development of US light tight oil production is also possible in lower price scenarios, but we would likely see an initial period of multi-quarter production decline, with output stabilising at a lower level," said Mladá Passos, product manager of Rystad Energy's Shale Upstream Analysis team. Plenty to ponder about as 2020 approaches, but that's all for the moment folks. Keep reading, keep it 'crude'!

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© Gaurav Sharma 2019. Photo: Oil exploration site in Oman © Royal Dutch Shell. 

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