Friday, March 06, 2020

OPEC+ talks collapse; oil futures tank

The Oilholic had to leave OPEC HQ prior to the conclusion of a rather fractious OPEC+ meeting which resulted in no agreement being reached among OPEC and its non-OPEC partners. Following are the key takeaways, from Vienna Airport:

  • Russia blocked OPEC efforts aimed at deepening ongoing OPEC+ cuts by 1.5 million barrels per day (bpd) raising the output cut level to 3.2 million bpd to the end of 2020.
  • Stalemate means current level of cuts are set to expire as of April 1, 2020.
  • Russian Oil Minister Alexander Novak even refused name/set date for next OPEC+ meeting; technical committee to meet on March 18.
  • Senior OPEC sources tell this blogger “There is no plan B”.
  • Oil benchmarks slump by as much as 8% in the immediate aftermath of the development and trading down by ~10% at the time of writing; Brent/WTI front-month contract at levels last seen in August 2016, and recorded largest intraday drop since the financial crisis. 

More considered viewpoints/analysis to follow once yours truly has arrived in Houston. Keep reading, keep it ‘crude’! 

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© Gaurav Sharma 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.

Thursday, March 05, 2020

Events overtaking OPEC as 1mbpd+ cut deepening is touted

After a meeting that went long into the night, OPEC+ is in for another hectic few days of haggling as it works out how to respond to the demand slump being caused by the coronavirus outbreak. 

OPEC+ technical committee's recommendation was for an expansion of its ongoing cuts of 1.2 million barrels per day (bpd) by 600,000 bpd.

But before the evening was done last night, a number as high as 1-1.2million bpd was being touted around, something that has held firm for much of this (Mar 5) morning and afternoon. Quite frankly, events have overtaken OPEC and demand forecasters are shooting blind at the moment, as the Oilholic noted via Forbes at IPWeek

But given the global proportions of the coronavirus spread, potential for $30 per barrel prices and demand growth shrinkage, Wall Street is finally waking up to the magnitude of the demand destruction that could happen. Here's yours truly's latest Forbes take on the subject

Lets see how the day unfolds. But for a deepening of that magnitude Saudi Arabia's headline production will have to drop below ~9 million bpd; and should that happen it'll be a bit of whopper facilitated by Saudi Crown Prince and Powerbroker-in-chief Mohammed Bin Salman! Keep reading, keep it 'crude'! 

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© Gaurav Sharma 2020. Photo: Ministerial Limos arrive at OPEC Secretariat in Vienna, Austria © Gaurav Sharma, Mar 5, 2020. 

Wednesday, March 04, 2020

Crude arrival in Vienna in the age of Coronavirus

The Oilholic has arrived in Vienna for the 178th 'Extraordinary' meeting of OPEC Ministers, only to be told that analysts and journalists will not be allowed into the Secretariat to mitigate chances of the spread of the coronavirus.

It seems the conference and its goings-on would be 'live streamed', and all of us would be moved to the confines of a meeting room at the Palais Hansen Kempinski with no media briefings and contact with oil ministers. Still old friends and diehards have turned for some outdoor coffee and cookies outside OPEC HQ.
 And here's the agenda for the next few days:
That's all for the moment folks! More from Vienna soon; but in the interim, keep reading, keep it 'crude'!

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© Gaurav Sharma 2020. 

Friday, February 28, 2020

A right royal crude market hammering


Coronavirus jitters have delivered a right royal hammering to the crude oil market, with the pace of bearish blows picking up considerably over the last 48 hours. Both major benchmarks are now over 25% below their 2020 peak achieved in the wake of the US-Iran skirmish at the turn of the new trading year. 

Key issue in finding a price floor stems from the fact that many, in fact most, crude demand forecasters are shooting blind, as the Oilholic wrote on Forbes.com. The local viral outbreak in China soon became a regional epidemic, and is now – in the view of some – a global pandemic in a matter of weeks. Complete dataset of the virus' economic impact will be trickling in soon, and there is market conjecture around that the global economy could be heading for a recession. 

Were that to be the case, and the fact that the virus has reached 50 countries, could result in crude demand destruction on an unprecedented scale, as yours truly via on Rigzone. So where from here? No one really knows, and unless OPEC+ provides temporary reprieve via a production at its next meeting scheduled for March 5-6, price floor would be hard to pin down. We could see benchmarks tumbling to as low as $30 per barrel; something that has indeed happened in the not too distant past. 

For now retail, travel, airline and energy stocks continue to take a hammering. In fact, the energy sector is now down 34% from 52-week closing high, while both Brent and WTI futures look likely to post their worst weeks in recent memory (last seen between December 2008 and January 2009 at the height of the global financial crisis). 

That was also the verdict of many yours truly interacted at the recently concluded International Petroleum Week in London. The event itself looked like it fell victim to the coronavirus as understandably Chinese and indeed many overseas delegates stayed away. 

Only major energy CEOs in attendance were those of BP and Vitol, and most attendees were pretty pessimistic about the oil price direction. Nonetheless, dialogues on energy transition over the course of three days proved to be very interesting as the sector continues its attempt at a low-carbon future. That's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2020. Graphs 1 & 2: Brent & WTI futures price movement 3M to Feb 27, 2020.

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