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Trump May Tap Up To 30MM Barrels From Oil Reserve To Halt Rising Gas Price

Having already yelled at OPEC on several prior occasions on Twitter with demands for Saudi Arabia and the rest of the OPEC cartel to boost production in order to push oil – and gasoline – prices lower…

… only to realize that the amount of needed incremental output is next to impossible to achieve when considering the amount of Iran exports that will be curbed on November 4 when the Iran sanctions kick in officially, Trump has been left with two choice: ease off the Iran sanctions and implement them more gradually, or release oil from the US Strategic Petroleum Reserve.

And now, with oil prices continuing to rise and pushing the price of gasoline to levels not seen in 4 years, at a critical time with November mid-term elections fast approaching, Trump appears to have decided on the latter, and is actively considering tapping into the nation’s emergency crude oil reserve, Bloomberg reported citing two people “familiar with the situation.”

While no decision has been made yet to release crude from the 660-million-barrel SPR stockade, options under review range from a 5-million-barrel test sale to a larger release of 30 million barrels. An even larger release could be possible it it were to be coordinated with other nations.

For Trump, the magic number appears to be $3 per gallon on the national level; every time regular gasoline nears that round number, Trump has been quick to voice his displeasure.

“Oil prices are too high, OPEC is at it again. Not good!” he said on Twitter last month. On the Fourth of July, Trump tweeted: “The OPEC Monopoly must remember that gas prices are up & they are doing little to help. If anything, they are driving prices higher as the United States defends many of their members for very little $’s. This must be a two way street. REDUCE PRICING NOW!”

…click on the above link to read the rest of the article…

Oil’s Perfect Storm Lays At Trump’s Feet

Oil’s Perfect Storm Lays At Trump’s Feet

Trump at stage

It’s becoming painfully clear that the way forward for global oil markets is going to be bumpy, very bumpy, particularly as we head into next year. Much of this uncertainty, even blame, is being increasingly leveled at a person that has surprised, flabbergasted and even shocked political opponents, allies and adversaries alike since he took office – President Donald Trump.

A growing line of thought surmises that while Trump uses the presidential bully pulpit, in this case Twitter, to put pressure on long-time ally and de facto OPEC leader Saudi Arabia to get ready to pump more oil to keep (both oil and gas) prices from spiraling out of control, much of the blame for higher prices actually belong to Trump.

The argument makes perfect sense. If Trump would ease back on both his heated rhetoric toward Iran, though that case could be made over much of Trump’s dealings with China, the EU, Canada and others, and if Trump would revisit his decision on re-imposing sanctions on Iran, then oil markets would benefit. Why? A softer line on Iran would reduce the worry or even fear that a loss of some 2.7 million barrels per day (bpd) of Iranian crude would roil oil markets so much that the Saudis would have to pump an unprecedented amount of oil, perhaps as much as 12.5 million bpd, eating up all of its spare capacity.

The Saudi’s have never pumped more than around 10.7 million bpd of oil, a level reached in June, and has for more than 50 years kept at least 1.5-2 million bpd of spare capacity for oil market management.

…click on the above link to read the rest of the article…

Spare Capacity: The Biggest Mystery In Oil Markets

Spare Capacity: The Biggest Mystery In Oil Markets

Oil Rig Offshore

With around 2.5 million barrels per day (mb/d) of Iranian supply targeted by the Trump administration, how will the oil market cope with the losses? Is there enough supply capacity to make up for the shortfall?

There is a great deal of debate about the true extent of the world’s spare capacity. Or, more precisely, there are a range of guesses over how much surplus is located in Saudi Arabia, the one country that really has the ability to ramp up large volumes of supply on short notice.

Saudi Arabia claims it could produce 12.5 mb/d if it really needed to. However, that claim has not been put to the test. Saudi Arabia’s all-time highest level of production was just over 10.7 mb/d in 2016, just before it helped engineer the OPEC+ production cuts.

Adding around 2 mb/d of extra supply – as President Trump demands – is a tall order. “More recent history shows Saudi has never produced more than 10.6mn b/d on average over a single month. And even in the recent period, we have observed a steep decline in domestic Saudi oil inventories,” Bank of America Merrill Lynch wrote in a note, arguing that there is plenty of reason to question the notion that Saudi Arabia has around 2 mb/d of idled capacity. “Thus, it appears the oil market has little confidence that Iran volumes can be easily replaced.”

The International Energy Agency estimates that there is around 1.1 mb/d of total global spare capacity that can truly be ramped up in a short period of time. A looser definition of spare capacity that encompasses the ability to add supply over several months puts the figure at about 3.4 mb/d, 60 percent of which is located in Saudi Arabia. Smaller additions come from the UAE, Kuwait, Iraq and Russia.

…click on the above link to read the rest of the article…

Russian Oil Production Soars To 11.193 Million Bpd

Russian Oil Production Soars To 11.193 Million Bpd

Oil

In line with its agreement with OPEC to reverse part of the cuts, Russia is boosting its crude oil production, pumping as much as 11.193 million bpd in the first four days of July, up from 11.06 million bpd in June, Reuters reported on Thursday, quoting a source familiar with the data.

Last month, Russia and OPEC’s largest producer and de facto leader Saudi Arabia managed to get OPEC and their Moscow-led non-OPEC allies to agree to boost production by unspecified quotas for individual countries part of the pact, to ‘ease market and consumer anxiety’ over the high oil prices. According to Russian Energy Minister Alexander Novak, Russia’s share of the 1-million-bpd total OPEC/non-OPEC increase could be around 200,000 bpd.

Before the decision to reverse some of the cuts—or as OPEC and allies put it, to stick to 100-percent compliance rates—Russia’s pledge in the pact was to cut 300,000 bpd of its oil production from the October 2016 level, which was the country’s highest monthly production in almost 30 years—11.247 million bpd.

Even before the OPEC and friends meeting, Russia had already started boosting its oil production, and had pumped as much as 11.09 million bpd in the first week of June—143,000 bpd above the country’s then-quota under the OPEC+ production cut deal.

Just before the meeting, all signs were pointing to Russia gearing up for a jump in its oil production, with plans for exports and refinery runs in the coming months indicating that Moscow was preparing to increase its oil production as early as this month.

Earlier this week, Russia’s Novak and his Saudi counterpart Khalid al-Falih discussed the latest developments on the oil market and exchanged information about their countries’ plans for production to meet summer demand, Russia’s energy ministry said in a statement. The decision to ease the combined OPEC/non-OPEC compliance rate from 147 percent in May 2018 to 100 percent starting July 1 equates to adding around 1 million bpd on the market, the statement said.

King Trump Shouts at the Ocean: Stop the Waves

Trump believes all he has to do to make things happen is to issue an ultimatum. One Tweet will explain.


The OPEC Monopoly must remember that gas prices are up & they are doing little to help. If anything, they are driving prices higher as the United States defends many of their members for very little $’s. This must be a two way street. REDUCE PRICING NOW!


Image modified from King Cnut and the Waves.

Hello Mr,. President gas prices are up because of your absurd embargo on Iran.

And here’s the deal: The more effective your embargo, the higher gas prices will go.

I have a suggestion. Please study Econ 101.

Meanwhile, please note that shouting at waves will not produce results.

Saudi Arabia Won’t Bring 2 Million Bpd Online

Saudi Arabia Won’t Bring 2 Million Bpd Online

Oil tanker

President Trump said in a tweet on Saturday that Saudi Arabia agreed to boost oil production by 2 million barrels per day (mb/d), a claim that surely came as news to the Saudis.


Just spoke to King Salman of Saudi Arabia and explained to him that, because of the turmoil & disfunction in Iran and Venezuela, I am asking that Saudi Arabia increase oil production, maybe up to 2,000,000 barrels, to make up the difference…Prices to high! He has agreed!


The tightening of the oil market has pushed up prices, which is always a concern for U.S. politicians wary of catching heat from their constituents.

The decision by OPEC+ in June to hike production by 1 mb/d looks increasingly inadequate in dealing with the growing number of supply outages around the world. It’s no surprise that Trump wants more Saudi oil on the market, but he likely misunderstood what the Saudis told him.

Saudi Arabia was producing 10 mb/d in May and recent reports suggest they might add as much as 800,000 bpd to 1 mb/d in July, a massive increase in such a short period of time.

But it’s a far cry from the 2 mb/d that Trump thinks Saudi Arabia will add. That would translate into overall production of around 12 mb/d, which is probably unrealistic for a few reasons.

First, there are technical questions about how far and how fast Saudi Arabia can push its oil fields. Can they ramp up to 12 mb/d? Probably, but there is not a lot of historical evidence to go on. Also, they probably can’t do it immediately, it would take time, perhaps more than a year.

The second – and more important – reason why Saudi Arabia won’t comply with Trump’s wishes to add another 2 mb/d onto the market is that they don’t want to.

…click on the above link to read the rest of the article…

How the Iran sanctions drama intersects with OPEC-plus

How the Iran sanctions drama intersects with OPEC-plus

Major states buying oil from Iran are unlikely to heed the US call to drop imports; key allies want a waiver to avoid sanctions; OPEC, meanwhile, will have trouble boosting output in the short-term; the puzzle is not solved, but there are dark clouds

A file photo taken in March 2017 shows an oil facility on Khark Island, on the Gulf. The US warned this week that countries must stop buying Iranian oil before November 4 or face economic sanctions. A State Dept official said tightening the noose on Tehran was a top national security priority. Photo: AFP/ Atta Kenare

A file photo taken in March 2017 shows an oil facility on Khark Island, on the Gulf. The US warned this week that countries must stop buying Iranian oil before November 4 or face economic sanctions. A State Dept official said tightening the noose on Tehran was a top national security priority. Photo: AFP/ Atta Kenare

Iran Furious After Trump Calls Saudi King, Demands 2MM Barrel Production Boost 

Update: as expected, it did not take long for Iran – which has the most to lose from any Saudi output hike which would not only send the price of oil lower but also allow Riyadh to capture Iran’s sanctioned market  share – to respond, and moments ago Bloomberg reported that in an interview with Hossein Kazempour Ardebili, Iran’s OPEC governor, he said that “if Saudi Arabia accepts U.S. President Donald Trump’s request to boost output, that means he is calling on them to walk out from OPEC.

“We are 15 countries in an agreement. Set aside that they do not have the capacity, there is no way one country could go 2 million b/d above their production allocation unless they are walking out of OPEC.”

Well, if they don’t have the capacity (which they do), there is no reason to be concerned. And yet Iran is precisely that, and considering that Trump said Saudi Arabia has “agreed” to his demand, we may have just witnessed the end of OPEC.

* * *

Earlier this week, when within minutes of each other, news hit last Tuesday that first Saudi Arabia would boost production to a record 10.8mmb/d, an increase of nearly 1 million barrels per day from the Kingodm’s current 10.03mmb/d output, only to be followed almost immediately by a warning from the State Department advising US allies of a crackdown on Iran, and demanding they cut their Iranian oil exports to 0 by the Nov. 4 deadline, oil first dipped then spiked, as the market weighed the news of the potential drop in Iranian production far more than any potential Saudi output: after all that was already largely priced in during last weekend’s OPEC summit.

…click on the above link to read the rest of the article…

The Saudis Won’t Prevent The Next Oil Shock

The Saudis Won’t Prevent The Next Oil Shock

Oil rig

Saudi Arabia is starting to panic, and is growing concerned that the growing number of supply disruptions around the world could cause oil prices to spike. Saudi Arabia is moving quickly to head off a supply crunch, aiming to dramatically ramp up production to a record high 11 million barrels per day in July, according to Reuters.

The increase, if it can be pulled off, would be an incredibly rapid ramp up in output, up more than 1 million barrels per day (mb/d) from May levels.

How this plan fits into the latest OPEC+ deal remains to be seen. It was only a few days ago that Saudi Arabia and its coalition partners said that they would add 1 mb/d of supply back onto the market, with many of them acknowledging that, in reality, the figures would be closer to 600,000 bpd because of the inability of so many producers to ratchet up output.

As such, the addition of 1 mb/d from Saudi Arabia alone would lead to the OPEC+ group exceeding the production levels they just committed to, after factoring in additions from Russia and other Gulf States.

However, the surge in output does not need to exported, at least not right away. Saudi Arabia could divert extra barrels into storage. Moreover, higher output is needed during summer months anyway because the country burns oil for electricity, which spikes amid hot summer temperatures. So some of the extra production will be consumed domestically.

Still, an industry source told Reuters that the increase in output “will go to the market,” although the details are unclear. Bloomberg reports that shipments from Saudi Arabia to Aramco’s overseas storage facility in Egypt have already been on the rise this month.

…click on the above link to read the rest of the article…

Why OPEC+ Needed To Add More Oil

Why OPEC+ Needed To Add More Oil

OPEC

The OPEC+ group has decided to increase output by aiming to return compliance back to 100 percent, rather than the “over compliance” the group has posted to date. Although it remains to be seen how that translates into tangible production increases, because the number most kicked around was about 600,000 bpd, which is a rough figure that the markets will be assuming.

The decision will still leave the oil market rather tight on supply, and could require further action in the not-so-distant future.

Still, there are several reasons why OPEC+ feels compelled to increase production. First, the oil market is already in a supply deficit, and in fact, it may have been experiencing a deficit for four straight quarters, according to Bank of America Merrill Lynch. In 2017, the supply gap averaged 340,000 bpd, evidence that the original OPEC+ agreement succeeded in draining inventories last year.

The inventory drawdown led to total stocks dropping below the five-year average, a development that likely occurred several months ago, although data is published on a lag.

A second reason OPEC+ needed to increase supply is because demand continues to grow at a strong pace. The IEA pegs demand growth at 1.4 million barrels per day (mb/d) this year compared to 2017; more bullish analysts like Goldman Sachs estimated demand growth at 1.7 mb/d. The forecasts may vary, but either way, demand looks robust, which would likely exacerbate the supply gap as the year wears on.

On top of that, demand rises seasonally in the summer months. According to Rystad Energy, demand could jump by 1.1 mb/d in the third quarter from the second quarter. Read that again. That is 1.1 mb/d quarter-on-quarter growth, not compared to 2017 levels. Of course, that seasonal demand will ease after the summer, but the strain on the market cannot be ignored.

…click on the above link to read the rest of the article…

OPEC production increase shows it’s still fighting U.S. shale oil

OPEC production increase shows it’s still fighting U.S. shale oil

It felt like opposite day as traders bid up the price of oil last week even as OPEC announced an increase in oil production that should have sent prices downward. The cartel decided it had room to move because of outages in Venezuela, Libya and Angola amounting to 2.8 million barrels per day (mbpd). The increase apparently wasn’t as much as traders had expected.

Even though oil prices have drifted upward from the punishing levels of three years ago, OPEC is still interested in undermining the shale oil industry (properly called “tight oil”) in the United States which it perceives as a threat to OPEC’s ability to control prices. So, it is no surprise that OPEC has chosen to increase output in the wake of lost production elsewhere. OPEC does not want prices to reach levels that would actually make the tight oil industry’s cash flow positive.

You read that correctly. The industry as a whole has been free cash flow negative even when oil was over $100 per barrel. Free cash flow equals cash flow from operations minus capital expenditures required for operations. This means that tight oil drillers are not generating enough cash from selling the oil they’re currently producing to pay for exploration and development of new reserves. The only thing allowing continued exploitation of U.S. tight oil deposits has been a continuous influx of investment capital seeking relatively high returns in an era of zero interest rate policies. Tight oil drillers aren’t building value; they are merely consuming capital as they lure investors with unrealistic claims about potential reserves. (Some analysts have likened the situation to a Ponzi scheme.)

To demonstrate how unrealistic the industry’s claims are, David Hughes, in his latest Shale Reality Check, explains that expectations for recovery NOT of proven reserves, but of UNPROVEN resources are exceedingly overblown.

…click on the above link to read the rest of the article…

OPEC “Deal” Ends With Output Confusion, Sets Stage For “Deal Unraveling”

Just 24 hours after OPEC appeared on the edge of splintering, Iran seemed to cave and in a deal that was described as a victory for everyone, OPEC member states and Russia provided a vague assurance they would boost output by striving to return to full compliance of the original production quotas as set in the 2016 Vienna production cut agreement.

As Goldman summarized in its post-mortem, “no further details were provided, including no country level allocation, no guidance for non-OPEC participants or timeline for the increase.” Furthermore, during the press conference following Friday’s deal, the one question which never got an explicit answer is how much output would be boosted by, with little clarity shed beyond “targeting full compliance at the group level”.

This suggests that there is room for countries with spare capacity to increase production above the individual quotas but also that such adjustments could not be resolved.

As a result, Goldman’s energy analyst Damien Courvalin said that he views today’s agreement “as masking disagreements within the group and a potential start to the unraveling of the deal, with core-OPEC and Russia looking to increase production but Iran opposing such an increase.”

Bloomberg’s Javier Blas confirmed as much, noting that Friday’s agreement was a “fudge in the time-honored tradition of OPEC, committing to boost output without saying which countries would increase or by how much” a fudge which gave every member – especially Iran which by endorsing a production boost would have been seen as effectively approving of Trump’s sanctions and allowing other states to take its market share – an “out” to save face, by sufficiently masking up the details so no explicit accusations of backtracking can be made.

Importantly, “it gives Saudi Arabia the flexibility to respond to disruptions at a time when U.S. sanctions on Iran and Venezuela threaten to throw the oil market into turmoil.”

…click on the above link to read the rest of the article…

We Have A Deal: OPEC Agrees In Principle To A “Real” Production Increase Of 600,000 Barrels/Day

What was expected to be a drawn-out affair, with Iran potentially resisting and even leading to the collapse of the cartel, moments ago OPEC reached a deal in principle to raise oil production by 1 million b/d on paper, and in reality by 600 kb/d as many of the OPEC nations are already tapped out and unable to produce more.


OPEC reaches deal in principle to raise 1 mil b/d “on paper”: BBG. Brent up $1.30 on Thu’s close, around $74.41/barrel.

“Real” increase of 600,000 b/d: BBG


The deal is roughly what the committee had agreed to yesterday and is the plan pushed by Saudi Arabia all week.

As Bloomberg notes, this is the deal traders have been waiting for:

The fear was that, if the meeting broke up in disarray, Saudi Arabia would simply open the taps and other producers would follow suit, unleashing far more supply than the market needed. What this deal does is to bring some order to the process of easing supply restraint.

Indeed, absent some last minute shock, Iran appears to have gone along with the majority and will comply with what is effectively A Saudi-Russian decision, prompted by Trump complaints for the cartel to produce more oil .

As Bloomberg further adds, any distribution of output increases among OPEC and non-OPEC members “is going to create winners and losers.”

While the headline number is what will matter for oil prices, the relative gains and losses against their fellow members will also be important to the participants. That could mean ministers still have a way to go before they are finally done. But the fact that they have got as far as they have means that cohesion has, once again, proved paramount.

…click on the above link to read the rest of the article…

 

Oil Demand Growth Could Start To Soften Soon

Oil Demand Growth Could Start To Soften Soon

Oil

OPEC may tout the production cuts pact as the key driver of oil market rebalancing, but if it weren’t for the strong global oil demand growth of the past three years, we wouldn’t have seen international agencies calling the end of the oil glut.

Demand was strong because the lower-for-longer oil prices between 2015 and 2017 stimulated consumption growth in both mature OECD economies like the United States and most of Western Europe, and in emerging non-OECD markets—China and India in particular.

All oil importing nations benefited from the lower oil prices, but while demand growth in India and China is largely driven by economic expansion and industrial activity, in OECD economies demand is more closely linked with large and sustained changes in oil prices. The 70-percent rally in oil prices since the middle of last year is expected to moderate growth in the more price-sensitive OECD economies, Reuters market analyst John Kemp argues.

Oil demand will continue to increase, largely driven by non-OECD markets like China and India, but the higher oil prices could slacken the pace of the OECD demand growth that could curb global oil demand growth.

Last year, oil demand grew by 1.7 million bpd—similar to the 2016 growth and well above the 10-year average of some 1.1 million bpd, BP said in its BP Statistical Review of World Energy 2018 published this week.

“Not surprisingly, oil demand in 2017 continued to be driven by oil importers benefitting from the windfall of low prices, with both Europe (0.3 Mb/d) and the US (0.2 Mb/d) posting notable increases, compared with average declines over the previous 10 years,” BP noted.

Growth in non-OECD China—500,000 bpd—was closer to its 10-year average, according to the review.

…click on the above link to read the rest of the article…

OPEC May Oil Production

OPEC May Oil Production

All OPEC data below is from the OPEC Monthly Oil Market Report. All OPEC data is in thousand barrels per day and is through May 2018.

OPEC 14 Crude oil production was up 35,000 barrels per day but that was after March production had been revised down by 32,000 bpd and April production was revised down by 89,000 bpd.

Nigeria’s April production was revised down by 27,000 bpd and Saudi Arabia’s April production was revised down by 58,000 bpd.

…click on the above link to read the rest of the article…

Olduvai II: Exodus
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