Hurricanes Delivered A One-Two Punch To OPEC

Robert Boslego - INO.com Contributor - Energies


OPEC’s grand plan to cut production to drain blotted global oil inventories was a miserable failure in the first half of 2017. Total OECD stocks actually rose by about 75 million barrels by end-June from when the deal went into effect beginning in January.

HE Mohammad Sanusi Barkindo, OPEC Secretary General
HE Mohammad Sanusi Barkindo, OPEC Secretary General (c), with Mr. Nader Sultan, Director of the Oxford Energy Seminar (r), and Professor Roger Ainsworth, Master of St Catherine's College. Source: OPEC

But seasonal oil demand shifted into high gear in July and August. Inventories in the U.S., the largest oil consumer and the most data-transparent country in the world, dropped about 35 million barrels, given record-high demand for crude at U.S. refineries and relatively strong mid-summer product consumption.

This brief hiatus to OPEC’s failure to drain stocks in the first half of 2017 was already set to reverse when refineries performed their fall maintenance, reducing crude demand, and the summer driving season came to a close. But the two hurricanes, Harvey and Irma, accelerated the demand-destruction process.

About 3.2 million barrels a day (mmbd) of refinery throughputs were reduced by the Gulf hurricane, while petroleum product demand dropped 1.5 mmbd from the prior week. The impact of Irma on Florida and elsewhere in the Southeast is still uncertain and ongoing. Goldman Sachs has estimated that U.S. petroleum product demand may be nearly 900,000 b/d lower in September, and 300,000 b/d lower in October, as a result of the storms. Crude demand may average another million barrels per day lower due to problems reported at some refineries. Continue reading "Hurricanes Delivered A One-Two Punch To OPEC"

How Saudi Arabia Will Manage the Oil Market in 2017

Robert Boslego - INO.com Contributor - Energies


OPEC agreed in Algeria to limit future oil production. This represents a major shift in the policy announced in November 2014 to compete for market share through lower prices.

The OPEC communique stated the group will retain output to a "target range of 32.5 to 33.0 million barrels per day" (mmbd). In the latest OPEC Monthly Oil Market Report (MOMR), OPEC reported that production average 33.4 mmbd in September. While that is not far above the target range, there are other problems looming on the horizon; several countries—Nigeria, Iran, Iraq, and Libya—all want to restore their output to levels they were at before their supplies were disrupted, and that could push OPEC’s output up to nearly 35 mmbd if they succeed.

Saudi Energy Minister Khalid Al-Falih reversed KSA’s position from last April when it would not freeze output without Iran’s agreement to do the same. Instead, he said, Iran, Nigeria and Libya would be allowed to produce "at maximum levels that make sense as part of any output limits which could be set as early as the next OPEC meeting in November."

My interpretation is that Saudi Arabia and the smaller Gulf producers are therefore going to have to absorb the cuts if they intend to achieve the target. Continue reading "How Saudi Arabia Will Manage the Oil Market in 2017"