OPEC Appeases Russia To Stick With Deals

Robert Boslego - INO.com Contributor - Energies


The 173rd OPEC Meeting and 3rd non-OPEC Ministerial Meeting concluded with an agreement to extend the production cuts all the way through 2018. Saudi minister Khalid Al-Falih also implied that production in 2018 by Nigeria and Libya would not increase, based on information from those countries. In 2017, large increases by the pair undermined cuts made by others.

The official OPEC press release included two caveats, though not unusual but were obviously a concession to Russia, that the deals could be modified, depending on market conditions:

"In view of the uncertainties associated mainly with supply and, to some extent, demand growth it is intended that in June 2018, the opportunity of further adjustment actions will be considered based on prevailing market conditions and the progress achieved towards re-balancing of the oil market at that time."

"To support the extension of the mandate of the Joint Ministerial Monitoring Committee (JMMC) composed of Algeria, Kuwait, Venezuela, Saudi Arabia and two participating non-OPEC countries of the Russian Federation and Oman, chaired by Saudi Arabia, co-chaired by the Russian Federation, and assisted by the Joint Technical Committee at the OPEC Secretariat, to closely review the status of and conformity with the Declaration of Cooperation and report to the OPEC – non OPEC Conference."

Saudi minister Khalid Al-Falih

Initially, at the meeting a year ago, the oil ministers predicted that the glut would disappear within six months. Then at the May meeting, the Saudi minister predicted that the extension would "do the trick" of draining the glut "within six months."
Continue reading "OPEC Appeases Russia To Stick With Deals"

OPEC's Fake Results and Upcoming Quagmire

Robert Boslego - INO.com Contributor - Energies


OPEC’s market monitoring committee reported that OPEC reached “120% compliance” with the production adjustments. It also reported that commercial OECD stocks had been reduced by 178 million barrels “since the beginning of the year.”

In reality, OPEC exceeded its collective production limit by about 850,000 b/d in September. It reported production at 32.748 million barrels per day, but that level must be adjusted to be comparable to the 32.5 million production ceiling it set last November.

To get a comparable figure, two adjustments must be made. Production from Indonesia must be added (740,000 b/d) because its output was included in the ceiling, notwithstanding it was dropping out. And production from Equatorial Guinea (140,000 b/d) must be deducted because it was not an OPEC member and its output was not included. Continue reading "OPEC's Fake Results and Upcoming Quagmire"

Oil Market Outlook Deteriorating With OPEC's Production Rise

Robert Boslego - INO.com Contributor - Energies


According to OPEC, global OECD oil inventories fell 22 million barrels in June to end at 3.033 billion. But that figure is 252 million barrels above its five-year average. OPEC has targeted reducing those inventories to the average level, but its own supply-demand projections imply that goal will not be met through 2018, assuming it maintains production at the July 2018 level. In fact, there will be a 45 million barrel build in 2017, and an additional 162 million barrel build in 2018, even if production does not rise after the extension ends in March 2018. This implies that oil prices will need to be below marginal production costs for some time in order to limit production growth.

July Production

OPEC reported that production rose by 173,000 b/d in July to average 32.869 million barrels per day (mmbd). OPEC’s 32.5 mmbd ceiling included Indonesia but did not in Equatorial Guinea, and so the adjusted July figure was 33.449. This implies that OPEC produced 949,000 b/d above its ceiling, a large failure, especially considering that it had been claiming to be 100% (or more) compliant with its quotas. Continue reading "Oil Market Outlook Deteriorating With OPEC's Production Rise"

Analysis Of Saudi Export Reduction For August

Robert Boslego - INO.com Contributor - Energies


On July 24th, Saudi energy minister, Khalid Al-Falih, announced that Saudi Arabia would limit its exports to 6.6 million barrels a day (mmbd) in August. He noted that other producers were still exporting larger volumes of oil than their production cuts imply.

“We are not doing this to allow other countries to free ride and undercut the agreement by overproducing,” said Mr. Al-Falih, reflecting a high level of frustration. Observers described Mr. Al-Fahil as “very nervous” over the weekend.

Saudi energy minister Khalid Al-Falih
Saudi Energy Minister Khalid Al-Falih. PHOTO: IGOR RUSSAK/ZUMA PRESS

I believe he sensed or was advised that oil prices may drop precipitously if OPEC only reported continued-high compliance. Last Friday, John Kilduff had said this was a “make or break” meeting, and “that if nothing comes out of this meeting, the cartel and Russia will be punished mightily.” Continue reading "Analysis Of Saudi Export Reduction For August"

Global Seasonal Oil Stock Draw In Jeopardy

Robert Boslego - INO.com Contributor - Energies


OPEC has set as its goal to reduce global OECD oil inventories to their five-year average. In his opening address to the 172nd meeting of the OPEC conference, Saudi Arabia's Minister of Energy, Industry and Mineral Resources, Khalid A. Al-Falih, remarked, "The market is now well on its way toward rebalancing."

After the meeting, Mr. Al-Falih said in a press conference that the current production quotas will "do the trick" of rebalancing stocks to normal levels within six months. But they extended the cuts to nine months because of the seasonal decline in demand expected in the first quarter of 2018.

OPEC Khalid A. Al-Falih

In May, OPEC reported that OECD global inventories are 276 million above the 5-year average. OPEC estimated its production in the first quarter to be 31.944 million barrels per day (mmbd). Assuming April's production of 31.7 holds for the remainder of 2017, there will be a total global stock draw of just 29 million in 2017: Continue reading "Global Seasonal Oil Stock Draw In Jeopardy"