Goldman Lists Two Conditions For The OPEC Production Cut Extension To Work

Goldman, which has been pushing for higher oil prices with seemingly daily bullish research reports for the past month, and which underwrote the last Saudi Arabian bond issue and is expected to also manage the Aramco IPO (explaining the bank’s conflict of interest), released a note commeting on the latest development in the oil market, which sent the price of crude higher by 3% after Saudi and Russia oil minister agreed to extend the OPEC production cuts by another 9 months through the end of Q1 2018. Specifically, Goldman writes that “today’s announcement will likely further extend the oil price rebound started last week on decent stock draws and low positioning, although the rally so far today has remained modest compared to the move that occurred last year when the OPEC cuts were first announced.”
Even so, Goldman’s oil analyst Damien Courvalin had some caveats. Specifically, he said that for the strategy to work, however, two things have to take place:
compliance needs to remain high and long-term oil prices need to remain low to prevent shale producers from ramping up investment significantly more. In fact, an extension of the cuts should go hand in hand with guidance of future production increases by low cost producers, in our view, with an already notable emphasis by Saudi and others that oil prices will likely remain in a $45-55/bbl long-term range, in line with our forecasts. This leaves us reiterating our 3Q17 $57/bbl Brent price forecast and, with an increasingly likely extension of the cuts, raises our confidence that the oil market will shift into backwardation in 3Q17. His full note below:
Saudi and Russia commit to a 9-month extension of oil production cuts
Saudi Arabia and Russia announced today, May 15, that they had reached an agreement to extend their oil output cuts for another nine months, through Mar-18. This announcement comes ahead of the scheduled May 25 meeting of OPEC members. Saudi energy minister Khalid al-Falih and his Russian counterpart Alexander Novak further pledged in a joint statement “to do whatever it takes” to reduce global inventories to their five-year average. In our view, this commitment to a longer than expected cut by the two largest participants of the output deal significantly increases the likelihood that all participants will agree to such an extension, with the longer duration likely helping to achieve high compliance through 2017.

This post was published at Zero Hedge on May 15, 2017.

Venezuela Is The Wild Card In The OPEC Deal Extension

News coming out of Venezuela over the past two years has reeked of corruption and failed political leadership: a long list of shortages, rampant poverty, incrimination of the opposition, and a recent move that puts the regime of Nicolas Maduro one step closer to a dictatorship. And these are only the developments that are recorded, with a recent LA Times Op-Ed suggesting that a Venezuelan homicide epidemic rages ‘unreported’ due to the country’s scrapping of crime statistics reporting over a decade ago.
Despite all of this, the Organization of Petroleum Exporting Countries (OPEC) expects Venezuela, endowed with the world’s largest oil reserves (depending on who you ask), to play a major role in the cartel’s plan to curb global supply. In OPEC’s November agreement, Venezuela accounted for almost 10 percent of the net supply cut from member nations (calculated as cuts minus allotted increases)

This post was published at Zero Hedge on Apr 11, 2017.

Libyan, Nigerian Exports Resume – -35% or 1.4 Billion Barrel Stock Gain Projected By YE 2017

Summary
Seadelta loaded Libyan crude, headed to China. Sudden rise expected in exports from Libya and Nigeria. Other producers expected to increase production as OPEC meets this week. Potential additions on the order of 1.4 billion barrels. February low in crude prices may be tested. I recently wrote that OPEC’s ‘production risks to the upside,’ as OPEC’s hopes for a supply-demand balance for 2017 have faded. I specifically mentioned that Libya and Nigeria want to restore production if and when they can.
Mohamed Oun, the country’s envoy to the Organization of the Petroleum Exporting Countries, said in an interview today, ‘Definitely, we will not agree to a freeze without reaching our quota from before,’ which is 1.6 million barrels per day.
On Thursday, a ‘Black Swan Event’ appeared in the news, that Libya was ready to double its production to 600,000 b/d within 4 weeks and to 950,000 b/d by year-end. At the same time, Nigeria was planning to restore more than 500,000 b/d of exports within days. I assessed that this scenario, if it materializes, could cause the crude oil market to re-test its lows of last February.

This post was published at David Stockmans Contra Corner By Robert Boslego, Seeking Alpha ‘ September 19, 2016.

Oil Glut Set to Worsen as Nigeria and Libya Fields Restart

Amid the most enduring global oil glut in decades, two OPEC crude producers whose supplies have been crushed by domestic conflicts are preparing to add hundreds of thousands of barrels to world markets within weeks.
Libya’s state oil company on Wednesday lifted curbs on crude sales from the ports of Ras Lanuf, Es Sider and Zueitina, potentially unlocking 300,000 barrels a day of supply. In Nigeria, Exxon Mobil Corp. was said to be ready to resume shipments of Qua Iboe crude, the country’s biggest export grade, which averaged about 340,000 barrels a day in shipments last year, according to Bloomberg estimates. On top of that, a second Nigerian grade operated by Royal Dutch Shell Plc is scheduled to restart about 200,000 barrels a day of flow within days.
While there are reasons to be cautious about whether the barrels will actually flow as anticipated, a resumption of those supplies – more than 800,000 barrels a day in all – could more than triple the global surplus that has kept prices at less than half their levels in 2014. It would also come just as members of the Organization of Petroleum Exporting Countries and Russia are set to meet in Algiers later this month to discuss a possible output freeze to steady world oil markets.
‘If you have some restart of Nigeria and some restart of Libya, then the rebalancing gets pushed even further out,’ Olivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland, said by phone. ‘It complicates matters a lot before the meeting in Algeria.’

This post was published at David Stockmans Contra Corner By Laura Hurst, Elisha Bala-Gbogbo and Angelina Rascouet, Bloomberg Business ‘ September 15, 2016.

Texas Shale Has Fought Saudi Arabia To A Standstill

Opec’s worst fears are coming true. Twenty months after Saudi Arabia took the fateful decision to flood world markets with oil, it has still failed to break the back of the US shale industry.
The Saudi-led Gulf states have certainly succeeded in killing off a string of global mega-projects in deep waters. Investment in upstream exploration from 2014 to 2020 will be $1.8 trillion less than previously assumed, according to consultants IHS. But this is a bitter victory at best.
North America’s hydraulic frackers are cutting costs so fast that most can now produce at prices far below levels needed to fund the Saudi welfare state and its military machine, or to cover Opec budget deficits.

This post was published at David Stockmans Contra Corner by Ambrose Evans-Pritchard The Telegraph ‘ August 1, 2016.

Yemen: A Saudi Genocidal War Backed by Obama with Regional Oil Reserves as the Prize.

Phil Butler
New Eastern Outlook
The Wall Street Journal is the perfect example of a state and corporate controlled counter-information service. A report recently attempts to characterize the Saudi war on the Yemeni people as having little to do with oil. Nothing my friends, nothing could be further from the truth. The Saudis need untapped reserves Yemen currently controls. Here’s a look at the real reason for the genocide in Yemen.
‘Yemen doesn’t produce a lot of oil, but there are reasons why oil markets would react to military action there. Why? Here’s the short answer, ‘ this is the ‘lead’ for an unnamed WSJ author shifting the blame for a war for profit. The story is bait, counter-intuitive and blurb-ish, but just enough to get Americans thinking in the right direction.
‘Right’ that is, if you’re Rupert Murdoch’s newspaper. But the reality underneath is all about Murdoch and his cronies’ investments in the region, and nothing to do with geo-strategic tanker routes.
The WSJ wants investor types who read the paper to believe oil prices surged a bit last week because of the ‘fear’ a ‘strategic choke-point’ known as the Bab el-Mandeb Strait might be clogged if the Yemen chaos spilled over into Saudi Arabia. Well, there’s no danger of that given the fact the Saudis are bombing Yemen back into the Stone Age using US weaponry.
Another potential though, does implicate the Bab el-Mandeb Strait, as well as Somalia across the waters from the Saudis. Our past research has shown clearly, the fact Saudi Arabia and most of the OPEC nations have already reached the oil supply tipping point, the so-called ‘peak oil’ paradigm.

This post was published at 21st Century Wire on APRIL 12, 2016.

OPEC Production Keeps Rising – -Hits 33.0 Million Barrels/Day In March On Iran/Iraq Gains

OPEC crude production rose in March as Iranian output climbed to the highest level in almost four years.
The Organization of Petroleum Exporting Countries increased production by 64,000 barrels to 33.09 million a day last month, according to a Bloomberg survey of oil companies, producers and analysts.
The group set aside its output target of 30 million barrels a day at its Dec. 4 meeting in Vienna. Saudi Arabia, Russia, Venezuela and Qatar tentatively agreed on Feb. 16 to cap production at January levels. They’ll meet with other countries, both in and out of OPEC, in Doha on April 17.
‘Talk is cheap,’ said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ‘It’s hard to be really bullish about the oil market when production keeps going up. The OPEC output totals are a little reminder that we’re still in the midst of a massive glut.’

This post was published at David Stockmans Contra Corner on April 4, 2016.

The $3 Trillion Oil And Gas Debt Bomb – -Similarities With The Mortgage Bust

See, OPEC: Janet Yellen knows how to do a freeze. Or, rather, a very slow thaw.
The Federal Reserve Chair’s reassurance of a gradual approachto raising interest rates helped revive an oil market losing its fascination with OPEC’s chatter. (Good job, too, what with Saudi Arabia and Kuwait announcing on the same day they would actually restart a field shut down in 2014. Clearly, the supply freeze is a complicated affair.)
So, too, though, is the Fed’s relationship with oil. And if you want to see how frozen, low rates can wreak havoc, cast your mind back to the housing crisis.
In several recent reports, energy economist Phil Verleger has laid out the unsettling similarities between the U. S. residential construction bubble and the later surge in oil and gas drilling investment.
We’ll still be arguing decades from now about exactly why we collectively went crazy for Floridian sub-divisions and the like, but cheap and plentiful credit was clearly a big factor.
The same goes for the oil and gas boom.
Just as the housing bubble relied on faith in U. S. house prices only going up, so investors’ willingness to buy the energy sector’s bonds (and stocks) rested on a couple of intoxicating assumptions: OPEC would backstop prices and China would never falter (so, about that…)

This post was published at David Stockmans Contra Corner on April 4, 2016.

Why The Crude Oil ‘Bottom’ Is Way Below $30

The first thing that popped into our minds on Tuesday when WTI oil briefly broached $30 for its first $20 handle in many years, was that this should be triggering a Gawdawful amount of bets, $30 being such an obvious number. Which in turn would of necessity lead to a -brief- rise in prices.
Apparently even that is not so easy to see, since when prices did indeed go up after, some 3% at the ‘top’, ‘analysts’ fell over each other talking up ‘bottom’, ‘rebound’ and even ‘recovery’. We’re really addicted to that recovery idea, aren’t we? Well, sorry, but this is not about recovering, it’s about covering (wagers).
Same thing happened on Thursday after Brent hit that $20 handle, with prices up 2.5% at noon. That too, predictably, shall pass. Covering. On this early Friday morning, both WTI and Brent have resumed their fall, threatening $30 again. And those are just ‘official’ numbers, spot prices.
If as a producer you’re really squeezed by your overproduction and your credit lines and your overflowing storage, you’ll have to settle for less. And you will. Which is going to put downward pressure on oil prices for a while to come. Inventories are more than full all over the world. With oil that was largely purchased, somewhat ironically, because prices were perceived as being low.
Interestingly, people are finally waking up to the reality that this is a development that first started with falling demand. China. Told ya. And only afterwards did it turn into a supply issue as well, when every producer began pumping for their lives because demand was shrinking.
All the talk about Saudi Arabia’s ‘tactics’ being aimed at strangling US frackers never sounded very bright. By November 2014, the notorious OPEC meeting, the Saudi’s, well before most others including ‘analysts’, knew to what extent demand was plunging. They had first-hand knowledge. And they had ideas, too, about where that could lead prices. Alarm bells in the desert.

This post was published at David Stockmans Contra Corner on January 15, 2016.

The Once And Former Oil Kingpin – – – Saudi Arabia On The Ropes

The great Kingdom of Saudi Arabia – the long-time dictator of crude oil prices for the world – is struggling on all fronts.
The Saudis are losing their proxy wars in both Syria and Yemen; their OPEC leadership is under threat; they are not winning the crude oil price war; and its long-running alliance with the West is in question.
From Saudi Arabia’s perspective, Iran seems to be gaining ground everywhere. Saudi Arabia has several weaknesses that help explain the current anxiety emanating from Riyadh.
1. Saudi Arabia losing its leadership in the OPEC
Saudi Arabia has been the default leader of OPEC; however, despite Saudi insistence to the contrary, the U. S. shale boom, increased Russian oil production, and a very resolute Iran are challenging this leadership.
The result is that Saudi Arabia now finds itself powerless in supporting oil prices. Instead of the much-needed production cuts, during the 4 December 2015 meeting, the OPEC nations refused to adhere to any ceiling, which has been the practice for years.

This post was published at David Stockmans Contra Corner on January 15, 2016.

Shale Patch Running Out Of Survival Tricks – -Cash Crunch Straight Ahead At $35

In 2015, the fracking outfits that dot America’s oil-rich plains threw everything they had at $50-a-barrel crude. To cope with the 50 percent price plunge, they laid off thousands of roughnecks, focused their rigs on the biggest gushers only and used cutting-edge technology to squeeze all the oil they could out of every well.
Those efforts, to the surprise of many observers, largely succeeded. As of this month, U. S. oil output remained within 4 percent of a 43-year high.
The problem? Oil’s no longer at $50. It now trades near $35.
For an industry that already was pushing its cost-cutting efforts to the limits, the new declines are a devastating blow. These drillers are ‘not set up to survive oil in the $30s,’ said R. T. Dukes, a senior upstream analyst for Wood Mackenzie Ltd. in Houston.
The Energy Information Administration now predicts that companies operating in U. S. shale formations will cut production by a record 570,000 barrels a day in 2016. That’s precisely the kind of capitulation that OPEC is seeking as it floods the world with oil, depressing prices and pressuring the world’s high-cost producers. It’s a high-risk strategy, one whose success will ultimately hinge on whether shale drillers drop out before the financial pain within OPEC nations themselves becomes too great.

This post was published at David Stockmans Contra Corner on December 29, 2015.

Global Oil Majors Prepare for Prices to Halve to $20 a Barrel

The world’s leading oil producers are preparing for the possibility of oil prices halving to $20 a barrel after a second day of financial market turmoil saw a fresh slide in crude, the lowest iron ore prices in a decade, and losses on global stock markets.
Benchmark Brent crude briefly dipped below $40 a barrel for the first time since February 2009 before speculators took profits on the 8% drop in the cost of crude since last week’s abortive attempt by the oil cartel Opec to steady the market.
But warnings by commodity analysts that the respite could be shortlived were underlined when Russia said it would need to make additional budget cuts if the oil price halved over the coming months.
Alexei Moiseev, Russia’s deputy finance minister, told Reuters: ‘If oil goes to $20, we will need to do additional [spending] cuts. Clearly we have shown that we are very willing to cut fiscal spending in line with an oil price at $60, for example. In order for us to be long-term sustainable [with the] oil price at $40, we need to do additional cuts, but if the oil price goes to $20 we need to do even more cuts.’

This post was published at David Stockmans Contra Corner on December 9, 2015.

OPEC Is Dead – – -R.I.P.

The Opec cartel is to continue flooding the world with crude oil despite a chronic glut and the desperate plight of its own members, demanding that Russia, Kazakhstan and other producers join forces before there can be output cuts.
Brent prices tumbled almost $2 a barrel to $42.90 as traders tried to make sense of the fractious Opec gathering in Vienna, which ended with no production target and no guidance on policy. It reeked of paralysis.
Prices are poised to test lows last seen at the depths of the financial crisis in early 2009. The shares of oil companies plummeted in London, and US shale drillers went into freefall on Wall Street.
Oil tankers are lined up off the cost of Texas, a flotilla of crude storage across the world Photo: Alamy
‘Lots of people said Opec was dead. Opec itself has just confirmed it,’ said Jamie Webster, head of HIS Energy.
Venezuela’s oil minister, Eulogio del Pino, pushed for a cut in output of 1.5m barrels a day (b/d) to clear the market, describing the failure to act as calamitous. ‘We are really worried,’ he said.
Abdallah Salem el-Badri, Opec’s chief, conceded that the cartel’s strategy has been reduced to an impotent waiting game, hoping that the pain of low prices will lure Russia and other global producers to the table. ‘We are looking for negotiations with non-Opec, and trying to reach a collective effort,’ he said.
Mr el-Badri said there have been ‘positive’ noises from some but none is yet ready to lock arms and create a sort of super-Opec, able to dictate prices. ‘Everybody is trying to digest how they can do it,’ he said

This post was published at David Stockmans Contra Corner on December 6, 2015.

Future Of Brazil’s Oil Industry In Serious Doubt

Oil market analysts keep a close watch on the weekly and monthly production figures from the U. S. EIA, watching for a sign that a contraction in output will help to balance global supply and demand.
There are a few reasons why so much attention is paid to the U. S., rather than other places around the world. First, the U. S. has consistent and reliable data, unlike a lot of other places, which makes analysis easier. Second, the U. S. is the principle culprit behind the collapse in oil prices, as its rapid run up in production pushed supplies well beyond demand. Third, U. S. shale, the source of the recent uptick in supply, rises and falls much more quickly than conventional oil fields, especially large-scale projects such as deep offshore.
Still, it is useful to pay attention to supply changes from outside the U. S. For example, in its November report, OPEC raises a few red flags on Brazil, where a deteriorating economy, a simmering corruption scandal, and a major pullback in the state-owned oil firm Petrobras, could all conspire to cut into Brazil’s oil output.
Brazil’s inflation has jumped to its highest level since 2003, running over 10 percent according to the latest figures. The central bank hiked interest rates to 14.25 percent, the highest in nine years to combat inflation, but so far it has been unsuccessful. Meanwhile, GDP is shrinking, with an expected contraction of 2.2 percent in 2015. And the unemployment rate has hit 7.6 percent, the highest since 2010.

This post was published at Zero Hedge on 11/17/2015.

Saudi Arabia Will Not Stop Pumping to Boost Oil Prices

Saudi Arabia is determined to stick to its policy of pumping enough oil to protect its global market share, despite the financial pain inflicted on the kingdom’s economy.
Officials have told the Financial Times that the world’s largest exporter will produce enough oil to meet customer demand, indicating that the kingdom is in no mood to change tack ahead of the December 4 meeting in Vienna of the producers’ cartel Opec.
‘The only thing to do now is to let the market do its job,’ said Khalid al-Falih, chairman of the state-owned Saudi Arabian Oil Company (Saudi Aramco). ‘There have been no conversations here that say we should cut production now that we’ve seen the pain.’
Saudi Arabia rocked oil markets last November when Opec decided against production cuts, making clear that the kingdom was abandoning its policy of reducing supplies to stabilize the price.
Since then, the oil price has collapsed from a high of $115 a barrel last year to $50 a barrel.
Global oil companies, which have put hundreds of billions of dollars of investment on hold as a result of low prices, will be disappointed by the Kingdom’s stance.

This post was published at David Stockmans Contra Corner on November 9, 2015.

The oil Cartel’s End Is Nigh – OPEC May Split At The December Meeting

As oil prices are now hovering around $45 per barrel, the entire oil and gas industry is looking forward to the next OPEC meeting, due to be held on December 4 this year in Vienna. On October 14, non- OPEC member Mexicoconfirmed its participation in a technical meeting organized by the cartel on October 21 in Vienna to which seven other non-OPEC members were also invited.
‘We are going with a technical delegation to receive information and exchange it with other producers. But Mexico will not take part in any reduction in production volume,’ said Mexico’s Energy Minister Pedro Joaquin Coldwell. The meeting was held last Wednesday and was attended by representatives of five countries: Russia, Brazil, Kazakhstan, Colombia and Mexico. The main agenda of the meeting was to exchange different market views and create a common strategy in response to the current market conditions and low oil prices.
What exactly happened at the meeting?
Venezuela has been the most vocal OPEC member when it comes to the issue of raising oil prices by altering the cartel’s production levels. During the technical meeting between OPEC and non-OPEC members, Venezuela proposed that OPEC must resume its policy adopted in 1980s of fixing the oil price. It suggested a possible ceiling price of $88 per barrel which would naturally require OPEC to reduce its current production levels. In addition, Venezuela also proposed another technical meeting of this kind to be held during the upcoming Dec 4 meeting.

This post was published at David Stockmans Contra Corner on October 29, 2015.

OPEC Just Kicked Oil Back Into The $30s Club

Increased pumping by OPEC as Chinese demand appears to be slackening could drive oil to the lowest prices since the peak of the financial crisis.
West Texas IntermediateCRUDE FUTURES skidded through the year’s lows and looked set to break into the $30s-per-barrel range after the Organization of the Petroleum Exporting Countries admitted to more pumping and China devalued its currency, sending ripples through global markets.
‘The familiar theme of oversupply and shaky demand is getting punctuated today,’ said Again Capital partner John Kilduff, who has expected WTI to aim for $30 per barrel. WTI futures for September fell more than 4 percent Tuesday and traded below $43.26 per barrel, the March 17 low.
Kilduff said, ‘$42.03 is going to be key. Then we’ll be back to extrapolating back down to the low 30s from the financial crisis.’ The intraday low in 2015 was $42.03, also reached in March. Brent futures, meanwhile, were just below $49 per barrel.
‘Overall, I think this devaluation by the Chinese suggests maybe the slowdown in economic growth is greater than people anticipate, and that’s where fear on the demand side is coming from and driving us lower,’ said Gene McGillian, analyst with Tradition Energy.

This post was published at David Stockmans Contra Corner on August 11, 2015.

OPEC is at risk of falling apart

OPEC has been the most talked about international organization among investors, analysts and international political lobbies in the last few months.
When OPEC speaks, the world listens in rapt attention as it accounts for nearly 40 % of the world’s total crude output.
With its headquarters in Vienna, Austria, one of the mandates of 12-member OPEC is to "ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry."

This post was published at Business Insider

Oil And Debt: The BIS Examines The Consequences Of Financialization

Posted By The Bank for International Settlements
Since mid-2014, after remaining relatively stable for four years at close to $100, the price of crude oil has dropped by roughly 50% in US dollar terms.1
Changes in production and consumption seem to fall short of a fully satisfactory explanation of the abrupt collapse in oil prices. The last two episodes of comparable oil price declines (1996 and 2008) were associated with sizeable reductions of oil consumption and, in 1996, with a significant expansion of production. This seems to be in stark contrast to developments since mid-2014, during which time oil production has been close to prior expectations and oil consumption has been only a little weaker than forecast (Graph 1, left-hand panel). Rather, the steepness of the price decline and very large day-to-day price changes are reminiscent of a financial asset. As with other financial assets, movements in the price of oil are driven by changes in expectations about future market conditions. In this respect, the recent OPEC decision not to cut production has been key to the fall in the oil price.
However, other factors could have exacerbated the fall in oil prices. One important new element is the substantial increase in debt borne by the oil sector in recent years. The greater willingness of investors to lend against oil reserves and revenue has enabled oil firms to borrow large amounts in a period when debt levels have increased more broadly. Issuance by energy firms of both investment grade and high-yield bonds has far outpaced the already substantial overall issuance of debt securities (Graph 1, right-hand panel).

This post was published at David Stockmans Contra Corner on February 7, 2015.

Global Cooling Watch: 33% Of North Sea Oil & Gas Drillers Face Bankruptcy

A third of Britain’s listed oil and gas companies are in danger of running out of working capital and even going bankrupt amid a slump in the value of crude, according to new research.
Financial risk management group Company Watch believes that 70pc of the UK’s publicly listed oil exploration and production companies are now unprofitable, racking up significant losses in the region of 1.8bn.
Such is the extent of the financial pressure now bearing down on highly leveraged drillers in the UK that Company Watch estimates that a third of the 126 quoted oil and gas companies on AIM and the London Stock Exchange are generating no revenues.
The findings are the latest warning to hit the oil and gas industry since a slump in the price of crude accelerated in November when the Organisation of Petroleum Exporting Countries (Opec) decided to keep its output levels unchanged. The decision has caused carnage in oil markets with a barrel of Brent crude falling 45pc since June to around $60 per barrel.
The low cost of crude has added to the financial pressure on many UK listed drillers which are operating in offshore areas such as the North Sea where oil is more expensive to produce and discover.

This post was published at David Stockmans Contra Corner on January 1, 2015.