OPEC+ in waiting mode as Russia plays hardball

Overnight (March 5) OPEC ministers met and proposed a deepening of existing oil production cuts by 1.5 million barrels per day (bpd) to their Russia-led OPEC+ partners in an effort to calm the oil market following the coronavirus outbreak and its devastating impact on the global economy.

While the original 'deepening of cuts' proposal was set to last until end-June 2020, OPEC heavyweights met yet again late yesterday evening and announced the proposal would be extended to the end of 2020. 

The burden of 1.5 million bpd, would be shared as 1 million bpd and 0.5 million bpd between OPEC and non-OPEC players respectively. From a headline perspective, if approved the market would be looking at 3.2 million bpd of OPEC+ barrels being taken out of the global supply pool. 

With that the ball went into the Russian court, and that's where it has been since well into today (March 6). In that time, Russian Oil Minister Alexander Novak has gone and returned from Moscow, and an OPEC+ closed-door meeting scheduled to start at 9:30 CET, has yet to get going 14:20 CET!

And the Oilholic has putting his scenarios to colleagues in the broadcast media. 

As the #OPEC+ waiting game continues, it was a pleasure discussing #oil market direction with @Cibereporter of @euronews. No matter what OPEC does, demand scenarios following #CoronavirusOutbreak are looking pretty dire #OOTT #oilandgas pic.twitter.com/VoYvp6HhjN

— Gaurav Sharma (@The_Oilholic) March 6, 2020

It was a pleasure rounding off #OPEC commentary on @CGTNEurope's Global Business broadcast with @AP TV crew. Thanks for having me on the program. Q1, Q2 looking pretty uncertain for the #oil market #OOTT #oilandgas pic.twitter.com/qIAJ2QQ6qm

— Gaurav Sharma (@The_Oilholic) March 5, 2020

In one scenario, Russia could say 'nyet' and you'd see bearish headwinds engulf oil futures and driving the price down to $30 per barrel. 

In another scenario, the mammoth cut would proceed providing only temporary relief to oil prices given the full extent of the coronavirus' demand destruction is yet to be clear. Although, Wall Street is belatedly, finally coming to terms with the magnitude of the destruction having ditched its complacency.

Finally, often the favourite colour at these OPEC meetings based on the Oilholic's past experience is grey. OPEC+ could emerge and offer a good old fashioned figures fudge involving OPEC cuts with the support of the Russians, and other non-OPEC players, with very few barrels to show for it. This too will either provide negligible or short-lived support. 

All of this bottles down to one thing - hardly anyone has an accurate handle on where oil demand is going, and the Oilholic believes there will be shrinkage on an annualised basis. Were that to be the case, a 'crude' logic applies - oil supply cuts never really solve a crisis of demand. It's where crude market presently is. OPEC can improve its odds via a cut but can do little more!

And on that note its time to leave Vienna for London, and then on to Houston, all the while keeping an eye on events here. But that's all for the moment folks. Keep reading, keep it 'crude'!

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© Gaurav Sharma 2020.

A ‘Qatarstrophe’, Saudi-Russian bromance & Tariff Man

The Oilholic arrived for visit number 25 to Vienna, Austria, for the 175th Meeting of OPEC Ministers on Wednesday (December 5) with a 'Qatarstrophe' in the background, rumblings over the Saudi-Russian oil market bromance, and of course US President Donald Trump declaring himself to be a ‘Tariff man’ after declaring a temporary truce with China.

The view in (see above left, click to enlarge) – of wind farms in the foreground and mountains in the background – on a clear Austrian day was quite a sight, and on the ground, yours truly's early morning flight from Heathrow (BA696) pulled up right next to Russian Oil Minister Alexander Novak's plane. Surely that's a 'crude' sign of things to come over the next few days.

Right, first to the Qatarstrophe, in case you haven’t heard – Qatar, which has been a member of OPEC since 1961, has decided to quit the cartel to "renew and redouble" its national focus on natural gas. Away from the official version, Doha feels cornered in a cartel that no longer serves its interests and is dominated by Saudi Arabia, a country that has slapped economic and diplomatic sanctions on it.

While Qatar's announcement created an intraday kerfuffle and a mini shock, it should hardly come as a surprise. Here is the Oilholic's detailed take on the development for Forbes. Unlike others, this blogger believes the development is not a fatal blow for OPEC, since members come and go, quit and rejoin. However, it is worth noting that Qatar is the first Middle Eastern member to quit, and Saudi Arabia and United Arab Emirates must shoulder much of the blame.

And there are other rumblings – many other OPEC member delegations are briefing in Vienna that they are not particularly impressed by the bonhomie (or more appropriately a crude bromance) between Saudi Arabia's oil minister Khalid Al-Falih and his Russian counterpart Alexander Novak; the two architects of the OPEC/non-OPEC production cut agreement, first inked in 2016. While others are voicing their concerns guardedly, Iran is doing so quite vocally. 

Finally, there's Tariff Man – a.k.a. US President Donald Trump, who has, well, made some peace with the Chinese, leading to a temporary suspension of trade hostilities. Parking trade wars to the side, he's been firing tweets at OPEC. Bring in the noise! More from Vienna soon, but that's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2018. Photo: View of Austrian landscape from BA696 to Vienna on December 5, 2018 © Gaurav Sharma 2018.

OPEC’s new deal: Fudgy math or fuzzy stats?

The deed is done and not a single Iranian appeared visibly riled in the end. Following the conclusion of OPEC's 174th Ministerial Meeting on Friday here in Vienna, Austria, the cartel announced a 'nominal' production hike of 1 million barrels per day (bpd).

But the futures market expected more and has gone into full bullish mode as the weekend approaches. At 18:32pm BST on Friday, the WTI front-month futures contract was at $68.77, up $3.23 or +4.93% and Brent was at $74.88, up $1.83 or +2.51%.

Both benchmarks more than recovered their overnight declines, as traders who – like the Oilholic – delved into the OPEC statement, encountered some real fudgy math or perhaps fuzzy stats. It seems all what OPEC has done is "insist" on 100% compliance with a 1.2 million barrels per day (bpd) cut it put forward in November 2016. 

The cartel's claim is that some of its members 'overcut' due to their own enthusiasm, or due to circumstances, geopolitics or lack of investment (Latter cases to be read as Libya, Nigeria and Venezuela). 

According to OPEC, this meant that compliance with the cuts touched 152% in May, instead of 100% or 1.824 million bpd. So now all OPEC has asked its members to do is bring compliance down to 100%, or put 624,000 barrels back on to the market and not a million! 

Of course, as has become the norm for over a decade now, OPEC did not reveal which individual member will do what and who is or isn't partaking in the exercise. That's the compromise to keep Iran onside for the moment. Here is one's Forbes piece for a more detailed perspective; but it is a jolly old fudge here at Helferstorferstrasse 17.

And oh, by the way, Congo's request to join OPEC has been accepted. So, if there's an OPEC-Plus or a Super-OPEC, it'll have 25 members to begin with. That's all from Vienna for the moment folks! More tomorrow when OPEC chats to its 10 non-OPEC counterparts.Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2018. Photo: Opec Secretariat, Vienna, Austria © Gaurav Sharma 2018

The prospect of ‘OPEC-plus’ or ‘Super-OPEC’?

With the OPEC International seminar done, half of the world's scribes and analysts, including yours truly, have now descended on OPEC HQ for the 174th Oil Ministers Summit, and the chatter about altering the global crude market order is all the rage here.

Its been helped in no small part by UAE Oil Minister and current OPEC President Suhail Al Mazroui. Following hints from various OPEC member delegates at the seminar, in his opening remarks to the ministers summit, Al Mazroui said he wanted to "institutionalise" the alliance between 14 OPEC oil producers and 10 non-OPEC producers leading to the creation of a much bigger crude cabal. Full report on Forbes here. 

Well we had what's dubbed as 'R-OPEC' dominating discourse back in November when the Russians last arrived to shake hands with OPEC, and brought other non-OPEC producers along for the ride. So, what would this new creation be called? The Oilholic's preference is for 'OPEC-plus'; afterall the johnny-come-lately(s) can only be described as additions to a decades old organisation. 

Of course, for dramatic effect, some have suggested 'Super-OPEC'. Chances are – should it happen – that neither of the two would be adopted, and that a designated policy wonk would come up with some bland name with a catchy acronym. That's all from OPEC for the moment folks. More later in the day. Keep reading, keep it 'crude'!

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© Gaurav Sharma 2018. Graph: UAE Oil Minister and OPEC President Suhail Al Mazroui (third from left) speaks at 174th OPEC Ministers Meeting in Vienna, Austria © Gaurav Sharma 2018.

OPEC quips send oil futures $1.50 or 3% higher

Its official OPEC ministers' and Russia's quips in favour of extending oil production cuts beyond June appear to have worked. Oil benchmark prices perked up by a princely $1.50 or just over 3% in week-over-week terms. 

Brent, the global proxy benchmark is well clear of $50 per barrel. If anything else, it's good news for the US oil patch, with independents plugging away, as another weekly uptick in the Baker Hughes rig count suggests. 

Away from it all, US President Donald Trump is perplexing the oil and gas industry in Texas. For a man who claims to be a champion of the 'crude' world, Trump's jibes against NAFTA are causing dismay in the oil and gas capital of the world, where people understand more than most, the cross border nature of the industry. 

Here's the Oilholic's reading of the situation in a detailed analysis and commentary piece for IBTimes UK. In a nutshell, if NAFTA is ripped up and Trump provides little or no clarity on US taxation - the oil and gas business would be hurt disproportionately. 

Most think its unlikely Trump will stir too much on the the NAFTA front. However, Trump being Trump you never know. That's all from Houston folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2017.