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Sat, 22nd July 2017

Anirudh Sethi Report

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Archives of “cartel” Tag

One Way Or Another – Venezuela Will Send Oil Prices Up

In a desperate bid to survive its economic meltdown, Venezuela is lobbying other OPEC members to agree to steeper oil production cuts, a move that would likely lead to higher oil prices.

Venezuelan officials have reached out to their counterparts in Iran, Russia and Saudi Arabia to press them on more collective action, according to Argus Media. If there was enough interest, the next step would be an “extraordinary meeting,” which would weigh the option of cutting deeper.

 The rumors about deeper OPEC cuts have been floating around since June, when oil prices collapsed into the low-$40s. The markets have grown deeply pessimistic about the health of the oil market, and doubt the OPEC cuts will balance the market by the end of the compliance period in March 2018.

But the behind-the-scenes effort from Venezuelan officials is notable, if only because the South American OPEC members was one of the earliest and most aggressive supporters of the original deal to reduce output. In 2016, for months the more powerful members of the cartel rebuffed Venezuelan pleas, but in the end they agreed to reductions in November after oil prices continued to wallow below $50 per barrel.

The deal pushed prices above $50 for a period of time, but after six months of restraint, the market is back in sub-$50 territory.

However, the urgency for higher prices is more acute now for Venezuela. Protests have spread nationwide in the South American nation as the economy contracts at a torrid rate. Violence is becoming more widespread, and the nation is suffering from political gridlock and economic and social disaster.

Over the weekend, the opposition organized an informal referendum, which attracted more than 7 million votes, to oppose anti-democratic moves by the government. The vote demonstrated widespread anger and opposition towards the government’s upcoming effort to consolidate power in a July 30 vote to rewrite the constitution, a move that would weaken competing institutions like the National Assembly. The referendum opposing the July 30 vote was not recognized by the government, but it was a show of force for the opposition.

There is no way out of the downward economic spiral for Venezuela in the short run without significantly higher oil prices.

OIL-OPEC Secondary sources say compliance for members dropped to 92% in June

There are a few headlines about the place this morning on compliance rates

Basic gist is that ‘secondary sources’ data used by OPEC show cartel members are pumping more, with compliance with cuts for its members down to 92% in June (from 110% in May)
  • Note, news on this has been doing the rounds since last week, with various numbers bandied about (the compliance rate updated)
  • Last week compliance was being reported around 97%, so the 92% figure is a worsening
Note, secondary-sources data is from external agencies OPEC uses to assess compliance. OPEC uses two sets of figures to monitor output, those supplied by each country & the secondary sources

OPEC Production Cut May Need to Be Extended: Oil Ministers

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.

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.

The OPEC “Vienna Matrix” – If 1MM Cut, Oil To $59; If No Cut, Oil To $40

While the market has taken the latest round of “optimistic” jawboning by OPEC members in stride, sending crude higher by 4% ahead of next week’s OPEC meeting in Vienna where the terms of the OPEC production cut are expected to be finalized, the reality is that a favorable outcome may be problematic.

As Bloomberg’s Julian Lee explained overnight, “OPEC says it’s close to a deal to cut oil output for the first time since 2008, a move that may halt a 2 1/2-year price slump. The actions of individual member states tell a different story. The simple math supporting cuts looked solid at OPEC’s meetings in June and December. Prices then were way below most members’ fiscal break-even points. An output cut now of 1.5 million barrels a day, or 5 percent, would need to boost the oil price by only $2.50 a barrel for OPEC nations collectively to be better off. A $5 price increase would boost the value of what they pump by about $100 million a day.”

 There are various nuances as to why a deal, one in which Saudi Arabia would bear the brunt of total production cuts, but as Lee notes, while OPEC Secretary-General Mohammed Barkindo has been touring member nations to shore up support for an agreement before the Nov. 30 meeting, culminating with a trip to Doha for talks last week, “the meeting didn’t resolve much. It certainly didn’t tackle any of the thorniest questions that OPEC must still overcome if coordinated measures are to happen.”

“The road from the OPEC agreement in Algiers to the next official OPEC meeting in Vienna is long and bumpy,” said Harry Tchilinguirian, head of commodities strategy at BNP Paribas SA in London.

OPEC Invites 12 Non-Cartel States to Attend Meeting in Vienna

According to Pino, the meeting of the OPEC states will be held on October 28, and the representatives of the non-cartel states will join them on October 29.

“We invited Russia, Azerbaijan, Kazakhstan, Oman, Egypt, Bahrain, Colombia, Mexico, Trinidad and Tobago, Bolivia, Norway and Canada,” Pino told journalists.

Pino added that solely Russia and Kazakhstan had confirmed their participation to date, answering the question on the aforementioned states’ confirmation of attendance. Earlier, Venezuelan President Nicolas Madura has said that his minister’s visit to Moscow aimed to work out the details of the oil production deal between OPEC and non-OPEC countries. On September 28, OPEC member states agreed on cutting its oil production to 32.5-33 million barrels per day for the whole cartel, however, no exact limits for each country have been placed. The OPEC countries are set to finalize the agreement on oil output freeze at the OPEC summit in Vienna on November 30.

Nigeria Slashes Oil Prices, Admits There Is A “Huge” Cargo Glut

Something ironic happened on the way to OPEC’s alleged production cut: the world finds itself drowning in excess oil.

We touched on this first last week when we observed that according to the latest OPEC monthly production numbers, OPEC had produced a record 33.4mmbpd, with some expectations that by the time the November Vinna OPEC summit takes place, there will be another million barrels in output.  And while the market, or at least the marginal price setting algos have been reluctant to admit the excess supply reality and adjust prices accordingly, OPEC member Nigeria has found the hard way that when there is a glut, the only way to gain market share is to underprice the competition.

Nigeria National Petroleum Corporation lowered by at least $1 a barrel its official selling prices (OSPs) for 20 out of 26 oil gradesmonitored by Bloomberg, according to pricing lists. Qua Iboe, Nigeria’s largest export crude under normal circumstances, was reduced by the most since 2014.

OPEC to Stress Test Oil Market, Further Output Cuts Possible

A security officer overlooks a street from a rooftop of the OPEC headquarters in Vienna. (File)The Organization of the Petroleum Exporting Countries (OPEC) is planning a series of oil market stress tests and the Wednesday decision on the oil output freeze is just the start of that process, former US Assistant Secretary for Fossil Energy Charles McConnell told RIA Novosti.

“I believe that if there is a sustained lift in prices there may be another cut in output. This may be counter-intuitive but it is part of the experiment,” McConnell, who is currently the Executive Director of the Energy and Environment Initiative at Rice University, said. On Wednesday, the OPEC states reached an agreement to freeze daily oil output for the whole organization. The commitment date of oil output freeze will be presented at the cartel’s upcoming meeting in November. “If prices go back down, there will likely be pressure to increase production…… They must run market tests and I believe this is the first of a series of tests we will see,” McConnell said.

According to the former US Assistant Secretary of Energy the stress tests will continue over the next 12 months.

“Volume of oil produced at lifting costs that are much better than anywhere else in the world is only maximized when the next available barrel to replace production causes prices to rise. It has risen short term, but 5% is not a large amount,” McConnell explained saying that OPEC countries are now “looking at their cost positions and profit margins and doing the optimization analysis.” On Wednesday, OPEC decided to establish a technical committee to study a mechanism of sharing oil production between individual countries.

Period of OPEC Oil Output Freeze Depends on Vienna Meeting – Iraqi Minister

He added that the cartel members were working very hard to revive the oil market and investments in some sectors of energy to at least 50 percent from before the sharp decline which started in 2014.

“The period is… maybe nine months, maybe one year it depends on the next meeting and the results of the high technical committee,” Al-Luiebi said at a Wednesday press conference after the extraordinary OPEC session in Algiers.

Earlier on Wednesday, media reported that the OPEC states reached an agreement to freeze daily oil output for the whole organization. The commitment date of oil output freeze will be presented at the cartel’s upcoming meeting in November.

OPEC also decided to establish a technical committee to study a mechanism of sharing oil production between individual countries.

Rosneft’s Sechin says OPEC effectively is extinct as a united organisation

Largest Russian oil company CEO Igor Sechin quoted on Reuters 10 May 2016

  • the time when OPEC could determine oil market conditions should be forgotten

Fighting talk from Russia’s most influential  oily-garch.

  • cartels can not dictate their will to the market
  • Rosneft was sceptical about chances of any joint agreemenrt on output freeze at Doha meeting.

Didn’t have to be a rocket scientist to spot that one.

“The 1970s, when a series of the largest Middle East producers could determine global oil market conditions by creating cartel structures such as OPEC, should be forgotten,” Sechin told Reuters in e-mailed comments.

“At the moment a number of objective factors exclude the possibility for any cartels to dictate their will to the market. … As for OPEC, it has practically stopped existing as a united organisation.”

It’s not the first time that Sechin, a close ally of President Putin, has mouthed off about OPEC having previously said that OPEC had “lost its teeth” and that Russia should stick to its own strategy and protect its market share.