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Fri, 20th January 2017

Anirudh Sethi Report

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Archives of “opec” Tag

US oil output to rise 1.3% in 2017, EIA says

US oil production has turned a corner after a long period of weak petroleum prices, the government said, with volumes rising for the first time since early 2015.

The Energy Information Administration forecast that oil output from the US will increase 1.3 per cent to 9m barrels per day in 2017, abandoning an earlier prediction of a 0.9 per cent fall.

In the first forecast for 2018 in its monthly Short-Term Energy Outlook, the statistical agency said US crude production will rise another 3.3 per cent, or 300,000 b/d, to 9.3m b/d. Production hit bottom last September, EIA said.

Opec still does not expect the oil market to move back into balance until the second half of next year, despite agreeing a global supply pact with Russia and other countries to cut output.

In its monthly outlook, the 13-member cartel pegged demand for its crude at 32.6m b/d next year – just 100,000 b/d above the group’s new output target of 32.5m b/d – and said the further supply cuts agreed with non-Opec members would contribute to mopping up excess supplies, but only slowly

“Combined with the joint cooperation with a number of non-Opec countries in adjusting production by around 600,000 b/d [this] will accelerate the reduction of global inventories and bring forward the rebalancing of the oil market to the second half of 2017,” Opec said.

The cartel’s view of the market is more conservative than some other forecasters. On Tuesday the International Energy Agency said it now expects the oil market to start moving into balance in the first half of next year.

Overnight US Market :Dow Closed +40 points

Stocks closed mixed Monday as the Dow hit a new all-time high and as oil prices jumped after several non-OPEC countries agreed to join the cartel in cutting output and as investors focused on interest rates. The S&P 500 and Nasdaq snapped 6-day winning streaks and retreated from record highs.

Investors were also focusing on interest rates as Federal Reserve  policymakers meet this week and most economists expect the Fed to announce a rate hike at the conclusion of the 2-day meeting on Wednesday.

The Dow Jones industrial average rose 39.58 points, or 0.2%, to a record close of 19,796.43, according to preliminary calculations. The Standard & Poor’s 500 index fell 0.1% to 2256.96,  after rising in early trading to set a new intraday record. The Nasdaq composite index dropped fell 0.6% to 5412.54.

Energy stocks got a boost as the price of U.S. benchmark crude oil jumped 2.6% to $52.83 a barrel as oil-producing countries outside of OPEC agreed to reduce production by 558,000 barrels per day. That comes after OPEC countries agreed in November to reduce production by 1.2 million barrels per day.

Wall Street Reacts To The OPEC/NOPEC Deal: “Saudis Are Wrong To Think US Shale Won’t Respond”

With oil prices surging to 17-month highs following this weekend’s OPEC-NOPEC deal and Saudi promises to cut still more, many Wall Street analysts are skpetical with Goldman Sachs warning that the Saudis are wrong to think U.S. shale production won’t respond to higher prices. However, Nomura and Bernstein see little threat to OPEC from rising U.S. shale production in 2017.

Prices spiked…

As The Saudis enabled yet another major short-squeeze… (Money managers slashed short bets on lower West Texas Intermediate crude prices by the most in five years after OPEC’s Nov. 30 accord to reduce supply.)

OPEC’s plan to cut output is a mixed bag for Asia

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.

 

Russia’s LUKoil Says Oil to Cost $60 Next Year After OPEC Deal

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.

Here Are The Details From The OPEC Production Cut Deal

Update 7: below is the complete OPEC agreement:

AGREEMENT

The global oil market has witnessed a serious challenge of imbalance and volatility pressured mainly from the supply side. It has led to significant investment cuts in the oil industry, which has a direct impact on offsetting the natural depletion of reservoirs and in ensuring security of supply to producers.

Current market conditions are counterproductive and damaging to both producers and consumers, it is neither sustainable nor conducive in the medium- to long-term. It threatens the economies of producing nations, hinders critical industry investments, jeopardizes energy security to meet growing world energy demand, and challenges oil market stability as a whole.

There is a firm and common ground that continuous collaborative efforts among producers, both within and outside OPEC, would complement the market in restoring a global oil demand and supply balance, in particular the drawdown in the stocks overhang, which is currently at a very high level.

At this conjuncture, it is foremost to reaffirm OPEC’s continued commitment to stable markets, mutual interests of producing nations, the efficient, economic and secure supply to consumers, and a fair return on invested capital.

Consequently, the recovery of oil market balance could be addressed through dialogue and cooperation among producing countries as a way forward for cohesive, credible, and effective action and implementation. Hence, it is under the principles of good faith that countries participating in today’s meeting agree to commit themselves to the following actions:

Here Is OPEC Production Cut Table, And It Has An “Error”

Shortly after the conclusion of today’s Vienna meeting, OPEC released the following table which lays out the breakdown of what the current reference production level is by nation, as well as the proposed adjustment to get to a 1.2 million barrel per day reduction, as well as the “pro forma” production number that will be effective on January 2017.

Two quick observations.

As noted previously, Indonesia is no longer in OPEC after it “suspended” its membership, effectively giving it full right to pump as much as it wants relative to its most recent October baseline production level of 722K per the OPEC monthly book. The reason for Indonesia’s departure, according to the Nigeria oil minister, is that it was “unable to contribute a large enough cut.”

More notably, Iran was in such a rush to declare victory and state that it is the only nation to be allowed to boost production that someone forgot to check the math in the table, because the 90,000 upward adjustment appears to be an error: the country’s Reference Production level of 3,975tb/d is actually well higher than the January production level of 3,797tb/d. However, for political and optical purposes, it was meant to give Iran a domestic “victory” over the Saudis, by giving Iran leeway to announce it was the only nation to be allowed to boost production in the face of Saudi opposition, when in reality it appears to have been a math glitch.

OPEC Releases Schedule For Nov. 30 Meeting; Fails To Agree On Anything Else

In an intraday update on the current status of pre-summit negotiations taking place Monday in Vienna, an OPEC delegate told Bloomberg that there have been “no big changes in the position of either Iran or Iraq” at the high-level committee talks, which began 8 hours ago, in Vienna. As a reminder, both Iran and Iraq have sought exemptions from cutting oil production and according to the Algiers agreement in late September, Iran had been granted just that, however since then Saudi Arabia appears to have reneged on its concession.

So with both Iran and Iraq refusing to yield to Saudi will, there is little else to report:

  • OPEC COMMITTEE MEETING HAS NO AGREEMENT SO FAR: DELEGATE: BBG

So as OPEC has so far failed to reach an internal agreement two days ahead of the big meeting, Iran and Russia now appear to be having side talks:

  • PUTIN, ROUHANI AGREED TO COORDINATE ACTIONS ON COMMODITY MKTS
  • PUTIN, ROUHANI STRESSED IMPORTANCE OF OPEC EFFORT TO CUT OUTPUT
  • PUTIN, ROUHANI SEE OPEC EFFORT AS `KEY FACTOR’ IN STEADYING MKT

There was some good news, however: suggesting that OPEC can agree on at least something, today the OPEC website released a tentative draft of the Program schedule of event for the November 30 meeting, presented below.

In Last Minute Twist OPEC Demands Big Production Cuts From Non-OPEC Members; Russia Balks

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.