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"

"OPEC, The Market and Oil Bulls Have Run Out of Runway" - Andy Hall

Robert Boslego - INO.com Contributor - Energies


Andy Hall has forsaken his bull oil market position. In an investment letter dated July 3rd, he wrote, “Whereas it once seemed positions could be held with an eye to a longer-term secular appreciation, that is no longer the case…. In short, OPEC, the market and oil bulls have run out of runway.”

Andy Hall
Source: Amanda Gordon/Bloomberg

Mr. Hall explained his reasoning this way:

“Hitherto, it had been our view that oil would trend higher as prices would need to rise to a level that would justify investment in more costly sources of supply than just the core areas of US shale. However, not only has the core shale oil resource grown significantly — above all in the prolific Permian Basin — but break-evens have dropped because of secular productivity gains outpacing cyclical cost increases, at least for now…. If the marginal cost of oil for the next 3 or 4 years is headed to the mid-$40 range, then OPEC’s attempts to push prices to $60 seem futile.” Continue reading ""OPEC, The Market and Oil Bulls Have Run Out of Runway" - Andy Hall"

OPEC Deals Have Effectively Collapsed

Robert Boslego - INO.com Contributor - Energies


When OPEC announced its agreement 30 November 2016, it pledged to bring its collective ceiling to 32.5 million barrels per day (mmbd), effective 1st of January 2017. At the time, that ceiling included Indonesia, which was in the process of withdrawing from the cartel. The adjusted ceiling, therefore, became about 31.76 mmbd, excluding Indonesia’s 740,000 b/d output.

The deal was extended at the end of May for an additional nine months through March 2018. At the press conference, OPEC president and Saudi energy minister, Khalid Al-Falih, answered a question about the rising production in Libya and Nigeria. He responded by saying that other OPEC members would adjust their output accordingly to allow, for their increases.

But data throughout 2017, and most recently June, reveal no such adjustments have been made. According to Reuters, June production averaged 32.57 mmbd, about 820,000 b/d above its ceiling, as adjusted.

And Libyan production has continued to rise, topping 1.0 mmbd at month’s end. Nigerian exports are scheduled to reach at least two mmbd in August, 500,000 b/d higher than in the cartel’s base month (October 2016).

OPEC’s output in October was around 33.7 mmbd (including Indonesia). And so June’s production of 33.3 mmbd (including Indonesia) is only about 400,000 b/d lower.

Based on the above expectations for rising output in August, the OPEC deal is effectively dead. OPEC production will be back to about where it was in October. Continue reading "OPEC Deals Have Effectively Collapsed"

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"