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Tue, 27th September 2016

Anirudh Sethi Report

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Latest Posts

Goldman cuts its oil forecast

It’s safe to say the market is not buying the chance of a production freeze from Opec members. Already, Brent prices have slumped sharply to reflect the latest run of comments from oil officials suggesting a deal would be a surprise.

For its part, Goldman Sachs has taken a sharp implement to its oil price forecasts, penciling in $43 per barrel for WTI, from $50 previously. (It’s now at $45.35.) “Since we expect only limited reversals of production disruptions, we view risks to this forecast as skewed to the downside,” it adds.

The bank says:

Statements by participants suggest potentially greater collaboration between OPEC members than in previous attempts, although the outcome of this advisory meeting remains uncertain. Our production forecast continues to reflect a seasonal Saudi production decline into year-end and no growth elsewhere.

Nonetheless, our 4Q16 oil supply-demand balance is weaker than previously expected given upside surprises to 3Q production and greater clarity on new project delivery into year-end. This leaves us expecting a global surplus of 400 kb/d in 4Q16 vs. a 300 kb/d draw previously.

We reiterate our view that oil prices need to reflect near-term fundamentals – which are weaker – with a lower emphasis on the more uncertain longer-term fundamentals.

Murphy’s Laws

  • If there is a possibility of several things going wrong, the one that will cause the most damage will be the one to go wrong.
  • If there is a worse time for something to go wrong, it will happen then.
  • If you perceive that there are four possible ways in which a procedure can go wrong, and circumvent these, then a fifth way, unprepared for, will promptly develop.
  • If everything seems to be going well, you have obviously overlooked something.
  • Nature always sides with the hidden flaw.
  • Whenever you set out to do something, something else must be done first.
  • Every solution breeds new problems.
  • Enough research will tend to support your theory.
  • When there is a very long road upon which there is a one-way bridge placed  at random, and there are only two cars on that road, it follows that: (1) the two cars are going in opposite directions, and (2) they will always meet at the bridge.

Iran takes hard line on oil talks, targets market share

Iran is taking a hard line as talks between big oil producers are set to get under way in Algiers.

Rather than targeting an outright level of production, Iran wants to regain lost market share before it joins any agreement to limit supplies, according to Iranian oil sources.

Tehran wants around 13 per cent share of any new Opec output ceiling. Based on the cartel’s current production that would translate to around 4.2m barrels a day – around 400,000 b/d more than Iran currently claims to be pumping.

Such a demand will be difficult for Saudi Arabia to accept. The Opec kingpin wants Iran to cap its oil output at 3.6m barrels a day, the level analysts say it produced in August, in exchange for other big producers cutting their production.

Opec members and other big oil producers are meeting on the sidelines of the International Energy Forum in Algeria. An informal meeting of Opec ministers is scheduled to take place on Wednesday.

Hopes of a deal are fading, although there could still be a surprise.

Saudi oil minister says oil market is trending in right direction

Oil minister Al-Falih speaking from the oil producers summit 27 Sept

  • optimistic about market fundamentals
  • oil supply and demand have converged
  • Saudi economy is doing very well

Meanwhile the Iranian oil minister says they are in Algiers only to exchange views, nothing more. May reach formal deal in November.

Oil price in retreat on that Iran comment. Brent down to $46.78 from $47.00

Reuters just adding from their Iranian oil source that Iran wants 12.7% of any new OPEC output ceiling, keen to regain market share

Russian oil min would want to freeze at current output levels.

ECB and China extend currency swap deal

The European Central Bank and its Chinese counterpart have agreed to extend an existing currency swap line between the euro and the renminbi first set up in 2013.

In a deal which will further cement the renminbi’s bid to become an international currency, the swap line has a maximum size of Rmb350bn and €45bn – the same conditions as that first set up three years ago and will be extended for another three years.

The ECB said the swap arrangement “serves as a backstop facility to address potential sudden and temporary disruptions in the renminbi market due to liquidity shortages in euro area banks”, adding:

Liquidity providing arrangements contribute to global financial stability. The arrangement with the PBC is a recognition of the rapidly growing bilateral trade and investment between the euro area and China.

As part of its bid to become a global reserve, the renminbi will be included in the International Monetary Fund’s Special Drawing Rights basket from October 1.

China is the EU’s second largest global trade partner behind the US.