In the clearest indication yet that OPEC jawboning no longer has an effect on markets, and especially headline scanning algos, following numerous headlines from Saudi energy minister Khlaid Al-Falih overnight warning that the oil rebalancing is imminent, and in case it isn’t, it will come in 2018 when OPEC and Non-OPEC producers may extend their production cuts, this morning oil is firmly hugging the flatline after a failed attempt to push higher earlier in the session.
As Bloomberg reports, Saudi Arabia and Russia signaled they may extend production cuts into 2018, doubling down on an effort to eliminate a supply surplus as oil prices continue to drop.
In separate statements just hours apart on Monday, the world’s largest crude producers said publicly for the first time they would consider prolonging their output reductions for longer than the six-month extension widely expected to be agreed at the OPEC meeting on May 25. “We are discussing a number of scenarios and believe extension for a longer period will help speed up market rebalancing” the Russian Energy Minister Alexander Novak said in a statement.
Speaking in Kuala Lumpur earlier Monday, Saudi energy minister Khalid Al-Falih said he was “rather confident the agreement will be extended into the second half of the year and possibly beyond” after talks with other nations participating in the accord.
Angola’s minister of petroleum said Thursday he expects the Organization of the Petroleum Exporting Countries (OPEC) to reach an oil output extension decision in May even if Russia declines to take part.
“I think so, yes,” Jose Maria Botelho de Vasconcelos told reporters when asked if the decision could be expected at OPEC’s next meeting in Vienna on May 25.
The Angolan minister said the cartel would decide on a six-month output cut extension if oil prices do not grow, naming $60 per barrel as a reasonable target.
Botelho de Vasconcelos added that OPEC’s decision would be reached even if non-member Russia opted out of the extension.
The biggest names in the oil world come together this week for the largest industry gathering since the end of a two-year price war that pitted Middle East exporters against the firms that drove the shale energy revolution in the United States.
When OPEC in November joined with several non-OPEC producers to agree to a historic cut in output, the group called time on a fight for market share that drove oil prices to a 12-year low and many shale producers to the wall.
Oil prices are about 70 percent higher than they were the last time oil ministers and the chief executives of Big Oil met in Houston a year ago at CERAWeek, the largest annual industry meet in the Americas.
The ebullience as both sides enjoy higher revenues will be a welcome relief from the gloom of a year ago, near the depths of the price war.
“The oil market has been rebalancing and the powerful forces of supply and demand have been working,” said Dan Yergin, vice chairman of conference organizer IHS Markit and a Pulitzer Prize-winning oil historian.
After a volatile day of White House rumors and denials, and OPEC headlines, WTI and RBOB ended the day lower ahead of tonight’s API data which showed a slightly smaller than expected crude build (+2.5mm against expectations of +3mm). However RBOB prices tumbled after an unexpected build.
Crude +2.502mm (+3mm exp)
Gasoline +1.84mm (-1.5mm exp)
While crude built again (the 8th week in a row), it was the swing back to a build in gasoline that is most notable…
The oil ministers of Iran and Qatar have suggested that OPEC’s production cut agreement may have to be extended beyond the June deadline, despite an almost 100-percent compliance rate.
The comments come a day after the American Petroleum Institute reported the second-largest crude oil inventory increase in history, at 14.227 million barrels, which added fuel to worries that production cut efforts are not enough to rebalance the market.
Oil prices surged to their highest level since July 2015 on Monday raising concerns about inflation and helped push the US 10-year Treasury yield above the 2.5 per cent mark.
The yield on the US 10-year, which moves inversely to price, climbed above 2.5 per cent for the first time in two years to 2.5005 per cent.
“The bearishness in the bond market is even more acute than the bullishness on equities,” David Rosenberg at Gluskin Sheff, said.
He added: “A wall of money is exiting the bond market into the stock market — bond fund outflows in the past five weeks are at the highest in three-and-a-half years.”
Alongside energy prices, Peter Tchir at Brean Capital also said the weakness in Japan “is concerning to global bond investors”. He noted the Bank of Japan had pledge in September to keep the 10-year yield on the Japanese government bond at or below zero per cent. Instead, the JGB is now at nearly 0.8 per cent. That “might be an indication of Central Banks losing their ability or willingness to suppress interest rates,” he said.
Despite the run up in oil prices, the S&P 500 was down 0.1 per cent to 2,257.67, while the Dow Jones Industrial Average was flat at 19,760.14 — less than 300 points shy of breaching the 20,000 level. The Nasdaq Composite was down 0.5 per cent to 5,420.70.
Investors appear to be pausing for breathe following the sharp run up in stocks in recent weeks.
OPEC’s first production cuts in eight years will be a mixed bag for Asia, with the region’s few oil exporters celebrating and just about everyone else fretting.
The planned cuts are particularly worrying for Southeast Asian economies losing steam as China’s growth slows. India also has cause for concern. The country saw its gross domestic product rise 7.4% on the year in July-September, faster than the 7.1% in the previous quarter, but the government’s surprise demonetization of 500- and 1,000-rupee banknotes is expected to affect the economy well into next year.
On Wednesday, OPEC agreed for the first time since 2008 to impose an oil production ceiling totaling 32.5 million barrels per day in an effort to stabilize the global oil market. Non-OPEC countries that expressed a desire to participate in the agreement, including Russia, are expected to curtail oil production by a total of 600,000 barrels daily.
“History of such OPEC operations that have been conducted in the market three times on a large scale shows that oil prices grow by 50 percent. Therefore, with a high percent of certainty I can say that during the next year the price of $60 will be a dominating price,” Fedun said presenting LUKoil’s analysis of the oil industry’s future. Iran, Iraq to Drive Conventional Oil Production Increase Inside OPEC by 2030 Iran and Iraq will be the driving force inside the OPEC group of oil producers behind the anticipated rise in conventional oil production in the years to come, the vice president said. “The main sources of increase in conventional oil production among OPEC states by 2030 will be Iran and Iraq,” Fedun said. Iran returned to the global oil market in early 2016 after the negotiating an agreement on nuclear program curbs. Iraq’s oil production has been hampered by the rise of Islamists in 2014, but the oil-rich nation has since reclaimed large swaths of land with air support from an international coalition.
The Dow Jones industrial average ended up fractionally Wednesday after a big jump in oil prices on word of an OPEC oil deal.
Tech stocks took a hit as the major indexes ended mostly lower to cap a wild month.
The Dow lost considerable steam, ending up a mere 2 points and about 29 shy of its record closing high of 19,152.14. Earlier in the day, it and the S&P 500 topped their closing records, both set Friday, before scaling back. The S&P 500 wound up in negative territory, down 0.3%
Losing more altitude is the Nasdaq composite, which fell 1.1%.
The price of benchmark U.S. crude jumped as much as 9%m ending about a dime over $49 a barrel after OPEC countries moved toward finalizing a deal to reduce production.
Among energy companies, Devon Energy (DVN) jumped 14.6%, the biggest gain in the Standard & Poor’s 500 index.
With less than a week to go until the much anticipated OPEC meeting in Vienna on November 30, the oil exporting cartel still seems unable to determine the terms of production cut quotas, who will be exempt from cutting, and even who will participate. According to Reuters, in the latest twist to emerge, as OPEC tries to find the sweet spot for production that reduces the oversupply of crude, the organization will ask non-OPEC oil producers to also make big cuts in output, as it seeks to share the burden of declining output and prevent market share gains by non-OPEC nations.
The oil minister of Azerbaijan was quoted as saying the cartel may want non-OPEC producers to cut output by as much as 880,000 barrels per day (bpd). “It could be expected that OPEC members may ask non-OPEC countries to cut production volumes for the next six months starting from Jan. 1 2017 … by 880,000 barrels from the total daily production,” Azeri newspaper Respublika quoted the country’s oil minister, Natig Aliyev, as saying.
Reuters countered that according to an OPEC source the group had yet to decide on the final figures to be discussed on Nov. 28, when OPEC and non-OPEC experts meet in Vienna. As previously reported, OPEC is expected to discuss production cuts of 4.0-4.5% among its members at the Vienna meeting to comply with the roughly 1.2mmbpd reduction as set forth in the Algiers meeting which expects total OPEC output of 32.5-33.0mmbpd, but Iran and Iraq still have reservations about how much they want to contribute.
A cut of 80,000 bpd would represent less than 2% of current total non-OPEC output.