Tag: The Organization of the Petroleum Exporting Countries (OPEC)

What Oil Price Band Do The Saudis Want?

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


Back in December, I deduced that the Saudis had budgeted a little less than $53 for oil in 2017. Their budget was based on their belief that they didn't expect to see any U.S. shale oil production response in 2017. Saudi Energy Minister Khalid A. Al-Falih said it in answer to a question in the press conference after the OPEC/non-OPEC meeting (see video starting at 51:35). He backed-up his belief basing it on the time lag of when oil prices had peaked in 2014 and when production peaked in 2015.

After the deals went into effect on January 1st, oil prices remained above $50 per barrel. According to the EIA’s weekly production data, U.S. crude production rose by 318,000 b/d between the last week of December and the week ending March 3rd, just before Al-Fahil’s speech in Houston during on March 7th.

U.S. Crude Production

He said he is optimistic about the global oil market in the weeks and months ahead, but "I caution that my optimism should not tip investors into 'irrational exuberance' or wishful thinking that OPEC or the Kingdom will underwrite the investments of others at our own expense." Continue reading "What Oil Price Band Do The Saudis Want?" →

Hurricanes Delivered A One-Two Punch To OPEC

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


OPEC’s grand plan to cut production to drain blotted global oil inventories was a miserable failure in the first half of 2017. Total OECD stocks actually rose by about 75 million barrels by end-June from when the deal went into effect beginning in January.

HE Mohammad Sanusi Barkindo, OPEC Secretary General
HE Mohammad Sanusi Barkindo, OPEC Secretary General (c), with Mr. Nader Sultan, Director of the Oxford Energy Seminar (r), and Professor Roger Ainsworth, Master of St Catherine's College. Source: OPEC

But seasonal oil demand shifted into high gear in July and August. Inventories in the U.S., the largest oil consumer and the most data-transparent country in the world, dropped about 35 million barrels, given record-high demand for crude at U.S. refineries and relatively strong mid-summer product consumption.

This brief hiatus to OPEC’s failure to drain stocks in the first half of 2017 was already set to reverse when refineries performed their fall maintenance, reducing crude demand, and the summer driving season came to a close. But the two hurricanes, Harvey and Irma, accelerated the demand-destruction process.

About 3.2 million barrels a day (mmbd) of refinery throughputs were reduced by the Gulf hurricane, while petroleum product demand dropped 1.5 mmbd from the prior week. The impact of Irma on Florida and elsewhere in the Southeast is still uncertain and ongoing. Goldman Sachs has estimated that U.S. petroleum product demand may be nearly 900,000 b/d lower in September, and 300,000 b/d lower in October, as a result of the storms. Crude demand may average another million barrels per day lower due to problems reported at some refineries. Continue reading "Hurricanes Delivered A One-Two Punch To OPEC" →

Oil Market Outlook Deteriorating With OPEC's Production Rise

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


According to OPEC, global OECD oil inventories fell 22 million barrels in June to end at 3.033 billion. But that figure is 252 million barrels above its five-year average. OPEC has targeted reducing those inventories to the average level, but its own supply-demand projections imply that goal will not be met through 2018, assuming it maintains production at the July 2018 level. In fact, there will be a 45 million barrel build in 2017, and an additional 162 million barrel build in 2018, even if production does not rise after the extension ends in March 2018. This implies that oil prices will need to be below marginal production costs for some time in order to limit production growth.

July Production

OPEC reported that production rose by 173,000 b/d in July to average 32.869 million barrels per day (mmbd). OPEC’s 32.5 mmbd ceiling included Indonesia but did not in Equatorial Guinea, and so the adjusted July figure was 33.449. This implies that OPEC produced 949,000 b/d above its ceiling, a large failure, especially considering that it had been claiming to be 100% (or more) compliant with its quotas. Continue reading "Oil Market Outlook Deteriorating With OPEC's Production Rise" →

Analysis Of Saudi Export Reduction For August

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


On July 24th, Saudi energy minister, Khalid Al-Falih, announced that Saudi Arabia would limit its exports to 6.6 million barrels a day (mmbd) in August. He noted that other producers were still exporting larger volumes of oil than their production cuts imply.

“We are not doing this to allow other countries to free ride and undercut the agreement by overproducing,” said Mr. Al-Falih, reflecting a high level of frustration. Observers described Mr. Al-Fahil as “very nervous” over the weekend.

Saudi energy minister Khalid Al-Falih
Saudi Energy Minister Khalid Al-Falih. PHOTO: IGOR RUSSAK/ZUMA PRESS

I believe he sensed or was advised that oil prices may drop precipitously if OPEC only reported continued-high compliance. Last Friday, John Kilduff had said this was a “make or break” meeting, and “that if nothing comes out of this meeting, the cartel and Russia will be punished mightily.” Continue reading "Analysis Of Saudi Export Reduction For August" →

"OPEC, The Market and Oil Bulls Have Run Out of Runway" - Andy Hall

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


Andy Hall has forsaken his bull oil market position. In an investment letter dated July 3rd, he wrote, “Whereas it once seemed positions could be held with an eye to a longer-term secular appreciation, that is no longer the case…. In short, OPEC, the market and oil bulls have run out of runway.”

Andy Hall
Source: Amanda Gordon/Bloomberg

Mr. Hall explained his reasoning this way:

“Hitherto, it had been our view that oil would trend higher as prices would need to rise to a level that would justify investment in more costly sources of supply than just the core areas of US shale. However, not only has the core shale oil resource grown significantly — above all in the prolific Permian Basin — but break-evens have dropped because of secular productivity gains outpacing cyclical cost increases, at least for now…. If the marginal cost of oil for the next 3 or 4 years is headed to the mid-$40 range, then OPEC’s attempts to push prices to $60 seem futile.” Continue reading ""OPEC, The Market and Oil Bulls Have Run Out of Runway" - Andy Hall" →