Saudi Arabia’s oil minister said that the supply cuts agreed by Opec and non-Opec countries at the end of last year may not need to be extended beyond June, as rising demand and strong compliance should have pushed the market towards balance by then.
Khalid al Falih, speaking at an industry event in Abu Dhabi, struck a bullish pose saying the cuts, which began on January 1, would have their “full impact by the first half” of 2017.
“We don’t think it’s necessary given the level of compliance…and given the expectations of demand,” Reuters reported.
“Based on my judgement today it’s unlikely that we will need to continue (the agreement) – demand will pick up in the summer and we want to make sure that the market is supplied well. We don’t want to create a shortage or squeeze.”
He added, however, that the group could still extend the six-month deal “if there was a need”.
Brent crude, the international oil benchmark, was up 38 cents at $55.83 a barrel by 10am London time while US benchmark West Texas Intermediate gained 32 cents to $52.69 a barrel.
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.
“The general decline in US crude oil production that began almost two years ago is likely over, as higher average oil prices and improvements in drilling efficiency are giving a boost to output,” said Adam Sieminski, the EIA’s administrator.
After suffering two record budgets shortfalls in 2015 and 2016 as a result of plunging oil prices, and which nearly brought both Saudi Arabia’s economy and banking sector to a standstill, not to mention billions in unpaid state worker wages at least until generous foreign investors funded the Kingdom’s imminent cash needs with its first, and massive, bond sale ever, today Saudi Arabia released it budget outlook for the next year.
And while the Saudis believe the country’s budget deficit will fall modestly next year even with an increase in spending, it is still set to be a painful 8% of GDP suggesting the Saudi cash burn will continue even with some generous oil price assumptions.
The budget deficit for 2017 is expected decline 33% to 198 billion riyals ($237 billion), or 7.7% of GDP, from 297 billion riyals or 11.5% of GDP in 2016 year and 362 billion riyals in 2015, the Finance Ministry said in a statement on its website on Thursday. In 2016, the finance ministry said its spending of 825 billion riyals ($220 billion) was under the budgeted 840 billion, and the 2016 budget deficit came to 297 billion, below the 362 billion in 2015.
The global oil market will move into deficit as soon as the first half of 2017 if Opec and countries outside the cartel successfully execute the global supply pact agreed in recent days.
The International Energy Agency, the Paris-based global energy advisory body, said in its monthly report that the planned output cuts could lead to demand outstripping supply by as much as 600,000 barrels a day.
“If Opec promptly and fully sticks to its production target, assessed at 32.7m b/d, and non-OPEC producers deliver the agreed cuts of 558,000 b/d outlined on 10 December, then the market is likely to move into deficit in the first half of 2017 by an estimated 0.6 mb/d.”
The IEA’s closely watched monthly report is the first major assessment of the oil market’s supply demand balance since Opec first agreed to reduce production on November 30.
Previously the agency had forecast the oil market would not move into deficit until the second half of 2017 at the earliest, with the prospect of the market remaining in surplus for a fourth straight year.
Ten days ago, we reported that as a result of Obama’s vow to extend the Iran Sanctions Act for another 10 years, Iran threatened to retaliate, saying it violated last year’s deal with six major powers that curbed its nuclear program.
While US officials said the ISA’s renewal would not infringe on Obama’s landmark nuclear agreement (which may or may not be voided by Trump), and under which Iran agreed to limit its sensitive atomic activity in return for the lifting of international financial sanctions that harmed its oil-based economy, senior Iranian officials took odds with that view. Iran’s nuclear energy chief, Ali Akbar Salehi, who played a central role in reaching the nuclear deal, described the extension as a “clear violation” if implemented.
“We are closely monitoring developments,” state TV quoted Salehi as saying. “If they implement the ISA, Iran will take action accordingly.” Iran’s most powerful authority, the Supreme Leader Ayatollah Ali Khamenei, warned in November that an extension of U.S. sanction would be viewed in Tehran as a violation of the nuclear accord.
To be sure, that was merely jawboning by Iran, which has far less leverage and far more to lose if it antagonizes Washington and provokes the US into reimposing sanctions upon the Gulf nation, amounting to the tune of over 1 million barrels per day in foregone oil exports that would be taken offline, should the US impose similar sanctions as those which took the country’s crude export production largely offline in the 2013-2015 timeframe.
It is also the lesser of Iran’s worries: a far bigger concern is whether Trump will tear up Obama’s landmark nuclear agreement.
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.
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.
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.)
Provided that the Federal Reserve delivers the widely tipped and expected 25 bp hike in the Fed funds target range, the key to investors’ reaction will be a function of the FOMC statement and forecasts. The FOMC meeting is the last big event of the year for investors. The Bank of England, the Swiss National Bank, and Norway’s Norges Bank hold policy meetings, none are likely to alter policy. Several emerging market central banks meet this week, and Mexico is the only one that will likely move. Many expect a 25 bp hike, but there is some risk of a 50 bp move. The Bank of Japan meets the following week, and it too is unlikely to take fresh measures.
A failure of the Federal Reserve to raise interest rates would be a significant shock and spur a dollar sell-off, a Treasury rally, and probably an equity market sell-off. The likelihood of this scenario is so low that it is not worth much time discussing. Similarly, 50 bp move also is highly unlikely. It would go against everything the Fed has been saying about gradual moves. It would be an admission of getting behind the curve, and there is no evidence that this is their assessment.
Since the FOMC last met, the US dollar has strengthened, interest rates have risen sharply, and the unemployment rate has fallen further. Investors will learn what the central bank makes of these developments. Officials that have spoken since the election have generally agreed that it is premature to make any judgments of changes in fiscal policy or economic policy more broadly. And for good reasons. It is far from clear the policies of the new Administration.
There seems to be a broad sense that probably near midyear there will some tax cuts and spending increases, alongside a tougher, perhaps more mercantilist trade policy. The details are vague, and how this sits with fiscal conservative wing of the Republican Party is not clear. While the intentions and signals of the President-elect have spurred a sizable reaction in the capital markets, more concrete details are needed to begin contemplating the impact on monetary policy.
On Tuesday afternoon, the billionaire founder and CEO of Japan’s Softbank and was seen entering the Trump Tower, to meet with the President-elect. It appears that they had fruitful conversations, because just a few minutes later, Trump – who earlier in the day lambasted Boeing over charging too much for Air Force 1 sending its stock lower – tweeted some words of praise for the Japanese businessman.
At 2:10pm eastern, Trump tweeted “Masa (SoftBank) of Japan has agreed to invest $50 billion in the U.S. toward businesses and 50,000 new jobs…” and in a follow up Tweet added “Masa said he would never do this had we (Trump) not won the election!”
As Dow Jones adds, $50 billion of the $100 billion investment will come from a joint investment fund Softbank had set up with Saudi Arabia. Son also said that he set up the meeting with Trump and “likes him very much”, however he declined to comment on his interest in T-Mobile.
It was not immediately clear what investments the Japanese investor would make, or what kinds of jobs he would create. However, as an immediate result of the benevolent tweets showing that Trump is favorably inclined toward SoftBank and vice versa, Sprint stock, which SoftBank already owns some 80% of and has been pushing for a merger with T-Mobile, spiked confirming that in the “Trump Normal” the biggest stock market catalyst will no longer be Fed headlines but Trump tweets.
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.