Iraq Only Pays Lip Service To OPEC Agreements

Iraq is OPEC’s second-largest producer, and its production in August was 4.88 million barrels per day, according to Platts, and 4.76 according to Reuters. Its production target is 4.512, and so it is producing around 220,000 b/d more than it had pledged.

OPEC
Source: Reuters

By contrast, Iran’s production has fallen by 1.6 million per day since the October 2016 base period, and Saudi Arabia cut its output by 920,000 b/d. Moreover, according to Majid Jafar, CEO of Crescent Petroleum, the largest private oil company in the region, it is “doubling down” on its investment in Iraq and intends to increase its production there. Continue reading "Iraq Only Pays Lip Service To OPEC Agreements"

OPEC's Unplanned Outages Supported Oil Prices

In early July, OPEC+ rolled-over its December 2018 agreement for another nine months ending March 2020. To get an idea of compliance with that agreement to-date, I compared changes in production from October 2018 (the base period) and June 2019, except for Russia, May 2019 due to a lack of data for June.

I found that OPEC delivered a cut of 2.46 million barrels per day, of 8%. That is more than three times its pledge of 800,000 b/d. The primary reason for such a large cut was sanctions on Iran and Venezuela.

Iran reduced its reported output by 1.3 million barrels per day or 38%. Venezuela reduced its output by 600,000 b/d, or 46%. It’s important to understand that both of those cuts were involuntary.

The largest voluntary cut was by Saudi Arabia, 620,000 b/d, or 8%. Saudi Aramco (ARMCO) lifted its production by 200,000 b/d in June from May to 10.1 million barrels per day.

OPEC

Note: Russia’s change is until May 2019. Continue reading "OPEC's Unplanned Outages Supported Oil Prices"

Iran Sanctions And OPEC's Deliberations Have Failed To Lift Oil Prices

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.” Continue reading "Iran Sanctions And OPEC's Deliberations Have Failed To Lift Oil Prices"

Oil Market Readies For Iran Sanction Waivers, Round 2

Crude oil production in Iran had reached 3.84 million barrels per day (mmbd) in the period following the lifting of sanctions by the Obama Administration. But following President Trump’s announcement in May 2018 that the U.S. would re-impose sanctions in November, demand for Iranian crude dropped to 3.7 mmbd by October. In November, the Trump Administration allowed limited waivers to the sanctions to eight countries, but Iranian production dropped by another 700,000 b/d by March.

The waivers were designed to terminate on May 2nd, but Secretary of State Mike Pompeo announced April 22nd that the waivers would not be extended. "This decision is intended to bring Iran's oil exports to zero, denying the regime its principal source of revenue," the White House said in a statement.

According to the International Energy Agency (IEA), Iran’s exports of crude and condensates are running about 1.1 mmbd in April. President Trump tweeted Saudi Arabia and others in OPEC had assured him that they would make up the impact of any decline in Iran’s exports:

Iran

In the months leading up to last November, KSA had increased its output to 11.1 mmbd, at the request of the White House, to ensure that oil supplies would be adequate once the Iranian sanctions took effect in November. But Trump’s granting of the waivers immediately created an oversupply in the global oil market, and oil prices collapsed as a result. Continue reading "Oil Market Readies For Iran Sanction Waivers, Round 2"

Saudi Arabia's "Mini Oil Embargo" May Backfire

On October 20, 1973, Saudi King Faisal announced KSA was joining in an oil embargo against the United States and Europe in favor of the Arab position in the Yom Kippur War. In an interview with international media, King Faisal said:

“America's complete Israeli support against the Arabs makes it extremely difficult for us to continue to supply the United States with oil, or even remain friends with the United States."

The price of oil quadrupled in short order, a few months. The oil shortage in America was managed by gasoline rationing by President Nixon. Drivers could buy gasoline on “odd” or “even” days, depending on the last digit of their license plate. There was also a maximum dollar amount set on purchases of $10. Motorists often had to wait in line for an hour to buy gas.

The economic impact on the U.S. and the world economy was devasting. It caused a massive recession in 1974-75, even though the embargo was lifted in March 1974. The Saudis and other OPEC producers learned how “inelastic” (i.e., non-responsive to price) gasoline demand was and their ability to stuff their coffers even with small cuts to production. Continue reading "Saudi Arabia's "Mini Oil Embargo" May Backfire"