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

OPEC Deals Have Effectively Collapsed

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


When OPEC announced its agreement 30 November 2016, it pledged to bring its collective ceiling to 32.5 million barrels per day (mmbd), effective 1st of January 2017. At the time, that ceiling included Indonesia, which was in the process of withdrawing from the cartel. The adjusted ceiling, therefore, became about 31.76 mmbd, excluding Indonesia’s 740,000 b/d output.

The deal was extended at the end of May for an additional nine months through March 2018. At the press conference, OPEC president and Saudi energy minister, Khalid Al-Falih, answered a question about the rising production in Libya and Nigeria. He responded by saying that other OPEC members would adjust their output accordingly to allow, for their increases.

But data throughout 2017, and most recently June, reveal no such adjustments have been made. According to Reuters, June production averaged 32.57 mmbd, about 820,000 b/d above its ceiling, as adjusted.

And Libyan production has continued to rise, topping 1.0 mmbd at month’s end. Nigerian exports are scheduled to reach at least two mmbd in August, 500,000 b/d higher than in the cartel’s base month (October 2016).

OPEC’s output in October was around 33.7 mmbd (including Indonesia). And so June’s production of 33.3 mmbd (including Indonesia) is only about 400,000 b/d lower.

Based on the above expectations for rising output in August, the OPEC deal is effectively dead. OPEC production will be back to about where it was in October. Continue reading "OPEC Deals Have Effectively Collapsed" →

Global Seasonal Oil Stock Draw In Jeopardy

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


OPEC has set as its goal to reduce global OECD oil inventories to their five-year average. In his opening address to the 172nd meeting of the OPEC conference, Saudi Arabia's Minister of Energy, Industry and Mineral Resources, Khalid A. Al-Falih, remarked, "The market is now well on its way toward rebalancing."

After the meeting, Mr. Al-Falih said in a press conference that the current production quotas will "do the trick" of rebalancing stocks to normal levels within six months. But they extended the cuts to nine months because of the seasonal decline in demand expected in the first quarter of 2018.

OPEC Khalid A. Al-Falih

In May, OPEC reported that OECD global inventories are 276 million above the 5-year average. OPEC estimated its production in the first quarter to be 31.944 million barrels per day (mmbd). Assuming April's production of 31.7 holds for the remainder of 2017, there will be a total global stock draw of just 29 million in 2017: Continue reading "Global Seasonal Oil Stock Draw In Jeopardy" →

Why The U.S. Gasoline Stock Build Was Not Surprising

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


The Energy Information Administration (EIA) reported that gasoline stocks had “surprisingly surged despite heavy driving on the Memorial Day weekend.” But the 3.3 million barrel build was actually not that surprising, given the development of gasoline production capacity and the relative softness of gasoline demand.

Over the past four years, the U.S. refining industry expanded its gasoline production capacity in the United States by almost one million barrels per day. In 2013, production peaked at just below 9.5 million barrels per day. Last year, production peaked at 10.3 million. And this summer production could reach 10.5 million.

Gasoline Production

Gasoline demand growth has lagged. Peak demand in 2013 was just above 9.1 million. Last summer, demand peaked at 9.6 million, an increase of about one-half million.

But in the year-to-date, gasoline demand has been 2.9% lower than over the same weeks in 2016. Retail gasoline prices dropped to low levels in the first quarter of 2016, when crude oil prices were bottoming, and that created a surge in demand that was not repeated in 2017. Continue reading "Why The U.S. Gasoline Stock Build Was Not Surprising" →

OPEC Lost Hedge Fund Long Oil Traders' Support

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


Mohammed Sanusi Barkindo

The drop in crude oil prices in the international market after the decision by OPEC to extend its production cut through March 2018 is not a major concern for now, the Secretary General of the group, Mohammed Sanusi Barkindo said. He's not worried about lower prices.

He explained that OPEC is only concerned with the fundamentals of supply, demand and inventories. He is not concerned about other market conditions. Presumably, he means the sentiment of oil traders. Continue reading "OPEC Lost Hedge Fund Long Oil Traders' Support" →

OPEC Caught a Tiger By The Tail

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


Oil prices peaked in this latest cycle at about $107/b in June 2014. Prices had dropped below $80/b by the OPEC meeting in November 2014, and OPEC had had enough of America's shale oil taking away their market share and declared a market share battle.

Prices dropped for more than a year before bottoming January 2015, and retesting that bottom again February. On Friday, February 12th, the March crude futures contract spiked 12.2% based on speculation of a possible OPEC agreement to cut oil production. Even though the four oil producers announced that they had tentatively agreed to "freeze" their production, the subsequent price increases have added a total of about $4 per barrel to the OPEC Basket Price.

Although OPEC has not cut one barrel of production, the market has altered its distribution of potential future oil prices, raising its probability-weighted expected value. The fact that OPEC and Russian producers are talking and have agreed to something has led the market to think there could be movement toward shoring up prices from their disastrously low levels.

OPEC seems to be learning this lesson. Venezuela oil minister Eulogio Del Pino Tweeted on Tuesday that "an expanded meeting of OPEC and non-OPEC producing countries that support production freeze will be held in mid-March." Such an announcement may ensure the price gains hold.

I had written on February 29th, 2016, ("OPEC Freeze Talk Is A Free Lunch"): Continue reading "OPEC Caught a Tiger By The Tail" →