OPEC+ members met over the weekend to discuss the oil market and the possible actions they may take at the next OPEC meetings scheduled for June 25th and 26th. OPEC’s press release reported:
Following its 14th Meeting, which took place on 19 May 2019, in Jeddah, the Kingdom of Saudi Arabia, the Joint Ministerial Monitoring Committee (JMMC) has reaffirmed its commitment to achieving a balanced market and working towards oil market stability on a sustainable basis with solid fundamentals.”
After the meeting, ministers spoke with reporters. According to reporting by CNBC:
Saudi Arabia’s influential oil minister, Khalid al-Falih, warned that global crude stockpiles are rising, threatening to swamp the world in oil and cause prices to collapse. Overall, the market is in a delicate situation. On the one hand, there is a lot of concern — and we acknowledge it — about disruptions and sanctions and supply interruptions. But on the other hand, we see inventories rising. We see plentiful supply around the world, which means we think, all in all, we should be in a comfortable situation in the weeks and months to come.”
Mr. al-Falih also said there was a consensus among OPEC and allied oil producers to drive down crude inventories “gently,” but he would remain responsive to the needs of a “fragile market.” The UAE oil minister added that OPEC producers were capable of meeting any “gap” in market supply.
The December 2018 OPEC+ agreement had called for a 1.2 million barrel reduction from October. However, the actual drop in OPEC production was nearly double that figure due to developments in Iran and Venezuela. Saudi can increase its production by about 600,000 b/d and still live within the agreement.
It was reported that Russia would like to see a “volume adjustment” for the second half of 2019. Higher production would be supportive for its economy. Russian Energy Minister Alexander Novak told CNBC that, “We have seen in the last few days an exchange of the imposition of customs duties. In addition, we have seen risks of a geopolitical nature with regards to this region.”
News from the meeting, along with a Trump tweet that "If Iran wants to fight, that will be the official end of Iran," sent WTI crude oil futures $0.34 per barrel on Monday, they were sitting just above $63 per barrel, off from the highs in late April.
According to Ebsen Poulsson, President of the Singapore Shipping Association, the Joint War Committee of Lloyds of London met on Saturday and made no announcement of war risk premiums going into effect for shipping in the Strait of Hormuz.
A final decision on the shape of the agreement for the balance of 2019 has been deferred until the June meeting. But market developments will remain highly uncertain following that meeting, and producers’ responses will remain fluid notwithstanding the June decision.
A breakthrough in the crisis in Venezuela, negotiations between the U.S. and Iran, or a surge of output in the second half on 2019 when Permian pipelines come online are three scenarios that could tip the balance toward oversupply. Until then, a fragile supply/demand balance and a risk premium in oil futures seems the most likely scenario.
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INO.com Contributor - Energies
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