Last week, ahead of the OPEC meeting, BofA commodity analyst Francisco Blanch said the oil cartel faced three specific choices ahead of its May 25 meeting in Vienna, when it is widely expected to extend the November 2016 production cut:
First, OPEC could cut production beyond the 1.2mn b/d agreed in December and encourage non-OPEC members to deepen the cuts.
Second, OPEC could increase output aggressively and restart the oil price war.
And third, OPEC could keep the cuts at the current levels for the next 6 to 9 months and hope for oil market demand conditions to improve.
BofA also presented the following table adding the proposed likelihoods of any given choice of action, of which a simple deal extension had the highest probability of taking place.
Despite the rise in US shale oil production, the expected extension of the OPEC oil extraction caps will provide a moderate support to global oil prices in the near-term, with boom or bust scenarios almost ruled out as the global energy market balances gradually.
Kristian Rouz – OPEC member-states and other oil-producing nations are meeting on May 25 to discuss, among other things, the extension and deepening of oil extraction caps in order to support crude prices and ease the supply-side glut issue.
An oversupply of oil has been affecting the global oil producers since the second half of 2014, when US shale production skyrocketed, proving disruptive to the existing structure of global oil trading.
Even though, according to the Saudi Energy Minister Khalid Al-Falih, all oil producers have agreed to extend oil caps by nine months, also possibly decreasing the current levels of extraction, global oil prices are not expected to post a significant rally in the near-term. The main reason is that the OPEC and non-OPEC oil cuts might be effectively offset by an increase in US shale oil production.
Last year, the US lifted a 40-year oil export embargo, and this February, the US shipped record-high volumes of crude overseas. While OPEC oil cuts have resulted in a decrease in the global market share occupied by members of the energy cartel (most notably Saudi Arabia), US oil started to fill this niche.
Investors will keep a close eye on US politics next week as US President Donald Trump’s first foreign trip coincides with a growing White House scandal at home.
Here’s what to watch in the coming days.
Donald Trump kicks off his first overseas visit since becoming US president by travelling to Saudi Arabia at the invitation of Saudi King Salman bin Abdulaziz this weekend. Mr Trump is set to agree to a $10bn weapons sale to Saudi Arabia as the US seeks to boost business and diplomatic ties with Riyadh.
The nine-day tour will also see Mr Trump visit Israel and continue on to Rome before heading to a Nato summit in Brussels. The meeting comes as the president’s attempts to give Nato a more formal role in the anti-Isis coalition has faced resistance from France and Germany. Mr Trump will also attend a G-7 meeting in Sicily.
The overseas trip comes with Mr Trump under siege at home following revelations that he pressed James Comey, the FBI director who was abruptly dismissed last week, to drop a probe into the Trump administration’s ties with Russia. Mr Comey has been invited to testify before Congress on Wednesday.
Further complicating matters, new Russia claims were published just after Mr Trump departed Washington on Friday, casting more clouds over the trip even as it got underway.
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.
Iraq oil minister: “Iraq wants prices to rise to $60. This our aim”
WSJ says Saudis and Kuwait also targeting $60
The WSJ is out with a story that’s bullish for oil. They say main producers had been seeking $55 per barrel but now want $60. They believe that level will boost their economies without attracting too much US shale drilling.
The higher price target suggests they will support an extension of quotas at meetings scheduled for the end of May.
The target is symbolic, the WSJ says, but “offers a window into how serious they are about using their supply power to affect the market.”
The big upcoming event is the Saudi Aramco IPO and that’s what is motivating the discipline from the Kingdom.
“They need this price [$60] for the IPO of Saudi Aramco,” a person familiar with Saudi oil policy told the WSJ.
British multiculturalists are feeding Islamic fundamentalism. Muslims do not need to become the majority in the UK; they just need gradually to Islamize the most important cities. The change is already taking place.
British personalities keep opening the door to introducing Islamic sharia law. One of the leading British judges, Sir James Munby, said that Christianity no longer influences the courts and these must be multicultural, which means more Islamic. Rowan Williams, the former Archbishop of Canterbury, and Chief Justice Lord Phillips, also suggested that the English law should “incorporate” elements of sharia law.
British universities are also advancing Islamic law. The academic guidelines, “External speakers in higher education institutions”, provide that “orthodox religious groups” may separate men and women during events. At the Queen Mary University of London, women have had to use a separate entrance and were forced to sit in a room without being able to ask questions or raise their hands, just as in Riyadh or Tehran.
“London is more Islamic than many Muslim countries put together”, according to Maulana Syed Raza Rizvi, one of the Islamic preachers who now lead “Londonistan“, as the journalist Melanie Phillips has called the English capital. No, Rizvi is not a right-wing extremist. Wole Soyinka, a Nobel Laureate for Literature, was less generous; he called the UK “a cesspit for Islamists”.
“Terrorists can not stand London multiculturalism”, London’s mayor Sadiq Khan said after the recent deadly terror attack at Westminster. The opposite is true: British multiculturalists are feeding Islamic fundamentalism. Above all, Londonistan, with its new 423 mosques, is built on the sad ruins of English Christianity.
Airline passengers traveling from eight Middle Eastern nations, including Jordan and Egypt, will be barred from carrying large electronic devices into the main cabin under new regulations from the Trump administration.
The new rules, which come into effect on Tuesday, also apply to Saudi Arabia and the United Arab Emirates, according to a US official. Passengers from the eight countries will have to check laptop computers and other large devices, such as tablets, into the hold on all flights bound for airports in the US. But the restrictions will not apply to flights leaving the US for the same countries, according to the official, who requested anonymity.
The move marks the latest attempt by the Trump administration to tighten security after Mr Trump vowed during the presidential race to do more to tackle terrorism. It comes one week after his administration issued a revised travel ban that temporarily bars citizens of seven largely Muslim countries from entering the US. The revised order, like the first one, has been blocked by the courts, preventing implementation for the time being.
Royal Jordanian Airlines earlier on Monday warned its passengers about the new Department of Homeland Security regulations regarding large electronic devises. But the airline later removed a notice from its social media accounts, following suggestions that it had prematurely released information. While some outlets have reported that the ban applied to 13 countries, the US official said only eight nations were on the actual list.
During a week that saw WTI crude prices erase all post-OPEC-production-cut-deal gains, after the Saudis admitted ‘cheating’ (but rapidly back-pedalled), oil speculators added almost 80,000 contracts to their short positions – the 2nd most in 34 years.
This surge in shorts reduced the massive record net long crude positioning by the 2nd most in history – but clearly it remains extremely one-sided still…
Saudi Arabia hailed yesterday’s meeting as a “historical turning point” in relations with the United States. He met with Deputy Crown Prince Mohammed bin Salman who is the economic power broker in the kingdom.
The White House said they discussed development of a new US-Saudi program with initiatives including infrastructure and energy worth potentially more than $200 billion.