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Saudi Arabia Refuses To Learn From Its Two Failed Oil Price Wars

Saudi Arabia Refuses To Learn From Its Two Failed Oil Price Wars

Having failed to achieve the slightest semblance of success in the two oil price wars that it started – the first running from 2014 to 2016, and the second running from the beginning of March to effectively the end of April this year – it might be assumed that key lessons might have been learned by the Saudis on the perils of engaging in such wars again. Judging from various statements last week, though, Saudi Arabia has learned nothing and may well launch exactly the same type of oil price war in exactly the same way as it has done twice before, inevitably losing again with exactly the same catastrophic effects on it and its fellow OPEC members. At the very heart of Saudi Arabia’s problem is the collective self-delusion of those at the top of its government regarding the Kingdom’s key figures relating to its oil industry that underpins the entire regime. These delusions are apparently not discouraged by any of the senior foreign advisers who make enormous fees and trading profits for their banks from Saudi Arabia’s various follies, most notably oil price wars. It is, in the truest sense of the phrase, a perfect example of ‘The Emperor’s New Clothes’, although in this case, it does not just pertain to Crown Prince Mohammed bin Salman (MbS) but to all of the senior figures connected to Saudi Arabia’s oil sector. One of the most obvious examples of this is the chief executive officer of Saudi Arabia’s flagship hydrocarbons company, Saudi Aramco (Aramco), Amin Nasser, who said last week – bewilderingly for those who know even a modicum about the global oil markets – that Aramco is to go ahead with plans to increase its maximum sustained capacity (MSC) to 13 million barrels per day (bpd) from 12.1 million bpd.

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US To Remove Patriot Missile Protection From Saudi Arabia Amid Oilpocalypse

US To Remove Patriot Missile Protection From Saudi Arabia Amid Oilpocalypse

Petrodollar panic?

As tensions between OPEC (cough – the Saudis – cough) and Washington rise over the supply (and price) of oil globally amid a pandemic-driven demand collapse, it would appears President Trump may have just gone ‘nuclear’.

“…there will be blood.”

The Wall Street Journal reports that The U.S. is removing Patriot anti-missile systems from Saudi Arabia and is considering reductions to other military capabilities – marking the end, for now, of a large-scale military buildup to counter Iran, according to U.S. officials.

As a reminder, OilPrice.com’s Simon Watkins warned last week that President Donald Trump was considering all options available to him to make the Saudis pay for the oil price war as the crash that followed has done significant damage to the U.S. oil industry.

With last month having seen the indignity of the principal U.S. oil benchmark, West Texas Intermediate (WTI), having fallen into negative pricing territory, U.S. President Donald Trump is considering all options available to him to make the Saudis pay for the oil price war that it started, according to senior figures close to the Presidential Administration spoken to by OilPrice.com last week. It is not just the likelihood that exactly the same price action will occur to each front-month WTI futures contract just before expiry until major new oil production cuts come from OPEC+ that incenses the U.S. nor the economic damage that is being done to its shale oil sector but also it is the fact that Saudi is widely seen in Washington as having betrayed the long-standing relationship between the two countries. Right now, many senior members on Trump’s closest advisory circle want the Saudis to pay for its actions, in every way, OilPrice.com understands.

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Singapore Oil Trading Giant On Verge Of Collapse After Banks Freeze Credit Lines

Singapore Oil Trading Giant On Verge Of Collapse After Banks Freeze Credit Lines

Back in the second half of 2015, shortly after Saudi Arabia unleashed the (first) OPEC disintegration by flooding the market with oil in hopes of killing US shale (so deja vu… only back then it took it about two years for it to realize its low production costs are no match for the US junk bond market) and when China’s economy briefly collapsed forcing Beijing to devalue its currency and trigger a violent plunge in commodity prices around the globe (so deja vu… only back then the Shanghai Accord of Jan 2016 restored order to the world), traders were looking for ways to short the chaos and one of the favorite trades was to bet on the collapse of commodity merchants such as Glencore, Vitol, Trafigura and Mercuria, whose fates were closely interwoven with the prices of the commodities they traded. As a result, Glencore’s stock price plunged and its CDS soared amid fears the commodity crash cascade would lead to a default wave among anyone with commodity exposure.

Fast forward 5 years when the biggest commodity crash in generations, one which has sent the price of oil tumbling to levels not seen since George H.W. Bush was invading Middle Eastern nations, and… nothing: while the Glencores of the world have indeed dropped, their valuations are nowhere near the late 2015 lows even as the prices of several key commodities have rarely been lower.

That might be changing, however, because the longer global economic activity fails to rebound and the longer commodity prices remain at their current depressed levels, the more the global liquidity crisis will transform into a solvency crisis, hitting some of the most prominent commodity traders in the world… such as Singapore’s iconic oil trader Hin Leong Trading, which according to Bloomberg has appointed advisers to help in talks with banks as some of them freeze credit lines to the firm.

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In Late Thriller, OPEC Production Cut Deal Collapses After Mexico Gives Crown Prince The Finger

In Late Thriller, OPEC Production Cut Deal Collapses After Mexico Gives Crown Prince The Finger

Earlier today we reported that following a dramatic objection to the OPEC+ production cut which was agreed upon by Russia and Saudi Arabia (but few other OPEC members), Mexico had initially threatened to quit OPEC as it refused to comply with the imposed 23% cut forced on all members, but less than an hour later the southern US neighbor reportedly had changed its mind as Reuters reported that Mexico had in fact agreed to the OPEC+ production cut deal after all.

Well, scratch all that because it appears the Reuters “news” was fake, sourced from some conflicted Saudi minister who wanted to put Mexico in a position where it had no choice but to accept the reality that had been imposed upon it. Unfortunately for the Saudis, this “plan” was laughable and late on Thursday, Mexico logged off the OPEC+ alliance’s videoconference emergency meeting after nine hours of talks Thursday, without agreeing to the landmark 10 million b/d production cut accord that members were hoping could stem a bruising rout in oil prices caused by the coronavirus pandemic and send the price of oil surging, S&P Global Platts reported, whose sources we can now confirm are far more credible than those of Reuters.

The rest of the coalition, led by Saudi Arabia and Russia, were in discussions over how to proceed, with many ministers angry over the potential blow-up of the deal.  The coalition will likely try to convince Mexico again Friday at a G20 energy ministerial that was originally scheduled to seek the participation of the US, Canada, Brazil and other key producers outside of OPEC+ to join its efforts.

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

The OPEC Meeting Could Send Oil Prices Crashing Below $10

The OPEC Meeting Could Send Oil Prices Crashing Below $10

OPEC Meeting

The current optimism of analysts and the media that an end to the ongoing OPEC+ oil price spat is near is entirely unjustified. The ongoing oil market volatility, the battle between leading producers for market share, the logistical impossibility of enforcing U.S. production cuts, and the continued demand destruction caused by COVID-19 are not issues that can be solved by an OPEC meeting. Immediately after Trump’s latest OPEC twitter offensive, Saudi Arabia and Russia came out with critical statements about the impact and influence of the US president on the matter. While Putin and Mohammed bin Salman are reluctant to bash Trump, the real power when it comes to the oil market does not lie with the U.S. President. The tweet by Trumpclaiming that MBS and Putin would agree to a 10+ million bpd production cut shows not only his overestimation of his own power over the two countries, but also shows a lack of knowledge about the underlying market fundamentals and the current demand destruction worldwide.  As former US president George W. Bush stated during his election campaign, which did not end well as we know, “it’s the economy stupid” that matters in the end. Trump’s tweets and general approach to this matter suggests he and his administration are out of touch with reality. Even if a Saudi-Russian combination would cut 10 million bpd, the oil price reaction would be minimal and very short-lived. At present, leading oil market experts such as Vitol, Trafigura and Goldman Sachs are warning of a total demand destruction of 20 million bpd or more.

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

The Inevitable Outcome Of The Oil Price War

The Inevitable Outcome Of The Oil Price War

Putin MBS

One might reasonably posit that when Crown Prince Mohammed bin Salman (MbS) signalled that Saudi Arabia was once again going to produce oil to the maximum to crash oil prices in a full-scale oil price war, Russian President Vladimir Putin probably fell off the horse he was riding bare-chested somewhere in Siberia because he was laughing so much. There is a phrase in Russian intelligence circles for clueless people that are ruthlessly used without their knowledge in covert operations, which is ‘a useful idiot’, and it is hard to think of anyone more ‘useful’ in this context to the Russians than whoever came up with Saudi’s latest ‘plan’. Whichever way the oil price war pans out, Russia wins.

In purely basic oil economics terms, Russia has a budget breakeven price of US$40 per barrel of Brent this year: Saudi’s is US$84. Russia can produce over 11 million barrels per day (mbpd) of oil without figuratively breaking sweat; Saudi’s average from 1973 to right now is just over 8 mbpd. Russia’s major oil producer, Rosneft, has been begging President Putin to allow it to produce and sell more oil since the OPEC+ arrangement was first agreed in December 2016; Saudi’s major oil producer, Aramco, only suffers value-destruction in such a scenario. This includes for those people who were sufficiently trusting of MbS to buy shares in Aramco’s recent IPO. Russia can cope with oil prices as low as US$25 per barrel from a budget and foreign asset reserves perspective for up to 10 years; Saudi can manage 2 years at most.

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

Oil Plunges To 17 Year Low As One Bank Predicts Negative Prices

Oil Plunges To 17 Year Low As One Bank Predicts Negative Prices

Late on Tuesday, WTI plunged as low as $26.20 taking out the lows from the 2015/2016 oil recession, and sending it to a level last seen when US president was George W. Bush, people were listening to Get Busy by Sean Paul and Dogville was one of the most popular movies: May 2003.

While there was no immediately clear catalyst, earlier in the day, Goldman’s commodities team published a report in which they discuss the need for commodity prices to drop below cash costs to generate supply curtailments as demand losses across the complex are now unprecedented, as Goldman now believes oil use is down an unprecedented 8 million b/d: 

Large commitments from core-OPEC for April/May deliveries pushes the net supply increase near c.3m b/d, which, when combined with the demand losses, results in an April/May surplus of 7mb/d, which will likely breach system capacity during 2Q20.

As Goldman’s Jeffrey Currie wrote, “the system strain creates a physical end, even though when COVID-19 will end is unknown, pushing our forecasts to shut-in economics. We now forecast 3m GSCI -25%.” As a result of price wars in oil and gas and uncertain policy responses in bulks and base metals, all a direct result of the sharp fall in demand resulting from the COVID-19 containment measures, Goldman has cut its 2Q Brent price target to just $20/bbl from $30/bbl. 

But that was not the worst of it for what little is left of oil bulls.

Outdoing not only Goldman, but virtually every single bearish oil analyst in existence, Mizuho’s Paul Sankey not only estimated that Goldman is too optimistic by half, calculating a whopping 15MM b/d in oversupply currently, but that crude prices could go negative – yes, as in you would be paid to take delivery – as Saudi and Russian barrels enter the market. 

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

Saudi Arabia Starts All-Out Oil War: MbS Destroys OPEC By Flooding Market, Slashing Oil Prices

Saudi Arabia Starts All-Out Oil War: MbS Destroys OPEC By Flooding Market, Slashing Oil Prices

With the commodity world still smarting from the Nov 2014 Saudi decision to (temporarily) break apart OPEC, and flood the market with oil in (failed) hopes of crushing US shale producers (who survived thanks to generous banks extending loan terms and even more generous buyers of junk bonds), which nonetheless resulted in a painful manufacturing recession as the price of Brent cratered as low as the mid-$20’s in late 2015/early 2016, on Saturday, Saudi Arabia launched its second scorched earth, or rather scorched oil campaign in 6 years. And this time there will be blood.

Following Friday’s shocking collapse of OPEC+, when Russia and Riyadh were unable to reach an agreement during the OPEC+ summit in Vienna which was seeking up to 1.5 million b/d in further oil production cuts, on Saturday Saudi Arabia kick started what Bloomberg called an all-out oil war, slashing official pricing for its crude and making the deepest cuts in at least 20 years on its main grades, in an effort to push as many barrels into the market as possible.

In the first major marketing decision since the meeting, the Saudi state producer Aramco, which successfully IPOed just before the price of oil cratered…

… launched unprecedented discounts and cut its April pricing for crude sales to Asia by $4-$6 a barrel and to the U.S. by a whopping $7 a barrel in attempts to steal market share from 3rd party sources, according to a copy of the announcement seen by Bloomberg. In the most significant move, Aramco widened the discount for its flagship Arab Light crude to refiners in north-west Europe by a hefty $8 a barrel, offering it at $10.25 a barrel under the Brent benchmark. 

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Oil Crashes After Reports OPEC+ Talsk End Without A Deal

Oil Crashes After Reports OPEC+ Talsk End Without A Deal

Update (1015ET): Reports, citing a delegate, for the first time in six years, OPEC ends talks in Vienna without a deal. being agreed. Oil prices are extending their collapse…

*  *  *

Update (0950ET): Bloomberg reports that OPEC+ talks “are on the verge of collapse” as it becomes clear that Russia will not agree (and in fact disagrees with their usefulness) to further production cuts, and in fact will not agree to extend the duration of the current production cuts.

WTI just hit a $42 handle…

Some context for just how bad this is…

And OPEC+ have been “managing” this for years?

*  *  *

Update (0815ET): Russia says it is ready for a decline in oil prices. It said OPEC+’s proposed deeper production cuts aren’t a solution to rebalancing the global oil market amid a collapse in demand.

* * * 

Brent crude futures tumbled by more than 4% on Friday after Reuters reported that Russia had rejected steep production cuts by OPEC to prop up oil prices amid the Covid-19 outbreak triggering demand shocks in China and across the world. 

A high-level Russian source told Reuters that Moscow has no interest in backing an OPEC reduction that calls for extended cuts and would only agree to existing cuts that OPEC already agreed on. 

OPEC has held several days of talks in Vienna, Austria, backing an additional 1.5 million barrels per day (bpd). However, it has failed to bring Russia on board. OPEC wants non-OPEC to contribute 500,000 bpd to the overall cut. The new deal would mean OPEC+ would cut a total of 3.6 million bpd, a move that would hopefully lead to a rebalancing in the global oil market in the second half of the year. On Russain disappointment, Brent crude futures dropped to its lowest level since July 2017, trading at $47.70 a barrel, or down 4.5% on Friday morning.

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“No Deal In Sight” – Oil Plunges After Russia Rejects Additional OPEC+ Cut

“No Deal In Sight” – Oil Plunges After Russia Rejects Additional OPEC+ Cut

Brent crude futures tumbled by more than 4% on Friday after Reuters reported that Russia had rejected steep production cuts by OPEC to prop up oil prices amid the Covid-19 outbreak triggering demand shocks in China and across the world. 

A high-level Russian source told Reuters that Moscow has no interest in backing an OPEC reduction that calls for extended cuts and would only agree to existing cuts that OPEC already agreed on. 

OPEC has held several days of talks in Vienna, Austria, backing an additional 1.5 million barrels per day (bpd). However, it has failed to bring Russia on board. OPEC wants non-OPEC to contribute 500,000 bpd to the overall cut. The new deal would mean OPEC+ would cut a total of 3.6 million bpd, a move that would hopefully lead to a rebalancing in the global oil market in the second half of the year. On Russain disappointment, Brent crude futures dropped to its lowest level since July 2017, trading at $47.70 a barrel, or down 4.5% on Friday morning.

Another source, this time with Bloomberg, said that Russia wants OPEC+ to sustain current output cuts until June. It would then be at that time where more data about market imbalances could be assessed and corrected, the person added. 

With Russia taking a “tough stance” on the proposed additional cuts, Commerzbank says Brent futures could extend declines to $40 per barrel. However, if Russia agrees to further cuts, Brent futures would jump to $60 in weeks. 

Goldman Sachs maintained its Brent price forecast of $45 per barrel in April. 

“Ultimately, a rebound in demand, not supply cuts, will be the necessary catalyst for a sustainable rebound in prices,” Goldman said. 

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

OPEC Agrees To 1.5MM Barrel Output Cut, But Fails To Obtain Critical Russian Backing

OPEC Agrees To 1.5MM Barrel Output Cut, But Fails To Obtain Critical Russian Backing

Today’s OPEC meeting has been more of a stunt by members to persuade Russia to agree to deep cuts amid a demand shock triggered by the Covid-19.

Ministers from OPEC agreed on a large cut of 1.5 million barrels per day in the second quarter to support prices but made it conditional on Russia joining in, said two OPEC sources, who were cited by Reuters.

Brent crude futures have soared between 6-10% in the last four sessions on OPEC+ JMMC technical committee recommendation, which stated cuts between 750,000 to 1 million barrels per day are needed to stabilize prices. Demand destruction from China and aboard has been one of the most significant shocks to hit global oil markets since the financial crisis a decade ago.

Reuters notes that Saudi Arabia, the largest producer in OPEC, has yet to win the support of Russia agreeing on the cuts. 

But that didn’t stop the algos bidding oil higher…

Moscow, which has worked with OPEC+ since 2016 to balance supply, has so far withheld its support for a reduction in output.

Russia’s energy minister left OPEC meetings in Vienna on Wednesday, expected to return on Friday for more in-depth talks.

“Our expectation is that OPEC+ will deliver a credible and coherent strategy that will take more barrels than what’s priced into the market off the table,” Mitsubishi UFG’s Ehsan Khoman told Reuters.

Russia could capitulate on Friday, as it has done everything so far to drag out production cut talks. Still, as we noted yesterday, “Russia will decide on production cuts at the very last minute.”

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

Saudis Urge More Than 1 Million Bpd Oil Cut To Prop Up Prices, Russia Opposes

Saudis Urge More Than 1 Million Bpd Oil Cut To Prop Up Prices, Russia Opposes

Update (0800ET): The Wall Street Journal reports that Russia opposes the Saudi plan to deepen OPEC+ cuts by 1.2mm b/d.

Developing…

*  *  *

As we detailed earlier, Brent crude futures were up 75 cents, or 1.45%, at 52.61 a barrel at 0700ET Wednesday after a three-day move of +10%, following expectations that major oil producers could make significant production cuts at the OPEC meeting on March 5. 

Brent has tumbled into a bear market, down 26.5% in 38 sessions, following the outbreak of Covid-19 in China, now spreading across the world, has slashed global oil demand.

“This is a sudden, instant demand shock,” said Jim Burkhard, vice president and head of oil markets at IHS Markit Ltd.

“The scale of the decline is unprecedented.”

OPEC+ Joint Ministerial Monitoring Committee, the body that oversees production, will meet on Wednesday, ahead of the formal meeting, to discuss cuts. Saudi Arabia is urging OPEC+ to come to an agreeance ahead of Thursday for a reduction of 1 million barrels per day to compensate for lost demand seen by the virus crisis, Bloomberg notes. 

“The recommended 600,000-barrel-a-day additional cut for the second quarter of 2020 will be seen as too little,” Mohammad Darwazah of consultant Medley Global Advisors said in a note. “It is clear that the group is mulling a deeper production pullback.”

The push for deep cuts comes as crude had its worst weekly decline since the 2008 financial crisis on mounting macroeconomic headwinds developing because of the virus spread, which forced Saudi Arabia to demand Russia jump on board with production cuts. 

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OPEC Slashes Oil Demand Forecast On Coronavirus Crunch

OPEC Slashes Oil Demand Forecast On Coronavirus Crunch

Perhaps buoyed by speculation that oil demand in China is set to plunge as much as 20% if not more on the coronavirus “demand shock”, on Tuesday OPEC slashed it forecast for global oil demand by almost a quarter million barrels per day as the coronavirus pandemic cripples fuel use in China, leaving the cartel facing a renewed glut despite its recent production cuts.

The cartel reduced projections for demand growth in the first quarter by 440,000 barrels a day, or about a third, in its monthly report, and 230,000 for the full year, one day after oil prices sank to a one-year low on Monday as the infection has idled thousand of businesses and left millions quarantined in the world’s biggest crude importer.

The plunge in oil prices has sparked a push by OPEC’s top exporter, Saudi Arabia, to push for an emergency meeting and consider new output cutbacks, following a recent Vienna meeting that ended without a consensus after Russia – the biggest non-OPEC producer – refused to comply with further cuts as it is able to weather lower prices more easily.

Ominously for Riyadh, the latest OPEC report showed that, even though many OPEC members made a strong start with fresh output curbs that took effect last month, the overhang from the virus will leave them with an even greater surplus. The group collectively pumped 28.86 million barrels a day in January, down 509,000 on the month, and if it maintains that rate there will be a surplus of 570,000 barrels a day during the second quarter, when consumption slows down seasonally.

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OPEC+ Committee Fails To Agree On Proposed Production Cuts

OPEC+ Committee Fails To Agree On Proposed Production Cuts

Oil futures remain in a bear market following the collapse in oil demand from China amid two-thirds of its economy shutdown following the coronavirus outbreak.

This forced the OPEC+ technical committee to meet in Vienna, Austria, for a third day this week, to discuss the importance of slashing oil output by at least 500,000 barrels per day (bpd), reported Reuters.

The Joint Technical Committee (JTC) is an advising body of OPEC and Russia, known as OPEC+.

As of Thursday, there’s no firm decision by the technical committee to cut oil production. This is because Russia has opposed to cuts and said it would be willing to agree on an extension of current cuts.

Ransquawk reports that the meeting has officially ended without a planned resolution of production cuts.

The technical committee meeting comes ahead of a planned OPEC+ conference on March 5-6.

OPEC+ has already agreed in December to remove 1.7 million bpd from markets in response to a slowing global economy. Now the deadly virus outbreak has created a “shock” in the global economy as China’s economy grinds to a halt. The country is the largest importer of crude in the world, suggesting that demand has collapsed, and oil prices will plunge deeper if supply isn’t curbed.

Russian Energy Minister Alexander Novak said on Tuesday that he wasn’t sure if it was time to tighten output further.

BP CFO Brian Gilvary warned Tuesday that the virus outbreak has reduced 2020 global demand growth by 300,000-500,000 bpd, or about 0.5%.

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

Saudi Arabia Pushes For OPEC Production Cut Of Up To 1 Million B/d As Outbreak Weighs On Demand

Saudi Arabia Pushes For OPEC Production Cut Of Up To 1 Million B/d As Outbreak Weighs On Demand

Half of China’s economy – the second largest in the world – is expected to be offline through at least mid-February. Traders started pricing in the impact on oil demand weeks ago. And now that it’s become clear to everybody that this problem isn’t going away any time soon, and after oil prices recorded their largest monthly drop in 30 yearsOPEC might step in to ‘re-balance’ the global energy market.

Confirming earlier whispers, Saudi Arabia is reportedly pushing for a major, short-term oil production cut, WSJ reported Monday morning, citing anonymous OPEC officials.

A group of OPEC countries and their allies – collectively known as OPEC+ – are planning to meet Tuesday and Wednesday to debate possible action thanks to the outbreak in China, the world’s largest oil importer and consumer.

One scenario being discussed is that Saudi Arabia, OPEC’s kingpin, would lead a collective reduction of 500,000 barrels a day. The production cut will remain in place until the outbreak has subsided, cartel officials said.

Another, more drastic, option being considered would involve a temporary cut of 1 million b/d, a cut that would deliver a decisive ‘jolt’ to the market (and potentially trigger another flurry of angry Trump tweets about oil prices – the ‘invisible tax’ – being too high.

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

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