OPEC+ producers are likely to maintain the current policy of 400k BPD monthly hikes, according to sources. However, the upcoming meeting will be more complex than the previous confabs given recent/ongoing major events: Russia's invasion of Ukraine, progress on the Iranian Nuclear Deal, and Brent sustaining above USD 100/bbls.
Looking at where the group stands. OPEC-13 members are in something of a sweet spot with regards to the oil price, not being involved in a war, and as Russian crude looks less attractive. Conversely, the group faces the prospect of Strategic Petroleum Reserve (SPR) releases alongside Iranian oil legally entering the market, which would provide less of an incentive to open the taps beyond the pact. All in all, the path of least resistance is seemingly for OPEC* to continue with the current hike plan whilst stressing flexibility.
RUSSIA-UKRAINE: The threat of energy export sanctions on Russia and the subsequent shortfall other producers must pick up may get discussed. Some have suggested that US officials want to avoid sanctions on Russian energy exports as it'll further stimulate crude prices. OPEC* delegates cited by Energy Intel believe the risk premium in crude prices (at at around February 25th). was some USD 10-15/bbl. Note, some business channels have been flagging the idea that Saudi Arabia could attempt to rein in Russian aggression with a move similar to the 2020 price war (output surge and OSP slash) - but it may be in Saudi's best interest to not get involved - for the sake of oil prices, relations with Russia and amid the prospect of additional business arising from potential Russian sanctions. Related: Oil Prices Soar Despite News Of Strategic Petroleum Reserve Release
IRANIAN NUCLEAR DEAL/ UNDER-PRODUCTION: OPEC+ members will also have to discuss the inclusion of Iran in its output quotas given the progress flagged by both sides in recent days on the revival of the nuclear deal - albeit some sticking points remain. An Iranian official said if US sanctions are lifted. Iran could boost its oil output to 4mln BPD from 2.5mln in about 3 months, according to Energy Intel. Despite sanctions. Argus estimated that Iran exported 789k BPD of crude in January (vs 705k 04 2020 average vs 2.3mln BPD pre-sanction exports). Meanwhile OPEC itself is facing difficulties with some producers lagging behind their monthly quotas - namely Nigeria and Angola.
OIL PRICES/JTC: The Russia-Ukraine developments aided Brent prices to regain a footing above USD 100/bbl for the first time since 2014. and despite the external pressure from consumers such as the US and India. OPEC* has remained reluctant to go beyond their pact thus far. The rise in oil prices has also lifted the global inflationary picture - thus leading to talks of further SPR releases to stem prices. WSJ sources reported that IEA members may agree to a release of 70mln bbl from stockpiles this week.
By NewsSquawk via Zerohedge.com
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Comments
OPEC+ is unlikely to change its current production policies given the accelerating rise in oil prices. It will sit tight and wait for the Ukraine crisis to eventually settle down eventually. Anyway, OPEC+’s shrinking production capacity isn’t big enough to stem the fast rise in oil prices. However, prices are still within the acceptable range of $100-$110 a barrel or within the tolerance level of the global economy. If Brent crude goes above $110, the global economy will start a demand destruction exactly as it did in 2008 when Brent crude hit $147 and also in 2014 when it rose to $115.
US sanctions against Iran will never see the light of day soon or ever. The reason is that the positions of the United States and Iran are irreconcilable. The only deal Iran will accept is one on its own terms meaning that sanctions will have to be lifted first with no new limitations on its nuclear and ballistic missile development programmes. This the United States egged by Israel won't accept.
The Iranian negotiators are aware that the United States is in a hurry to reach an agreement so as to focus all its energies on China and the evolving Ukraine crisis. Therefore, they will drag their feet for as long as possible to extract maximum concessions from the United States.
Even releasing 60 million barrels of the strategic reserves of the OECD including US reserves will hardly impact a global oil market in its most bullish state since 2014 and a global oil demand which has already entered a super-cycle phase that could last for ten years and take Brent crude to $120 a barrel in the next few years.
Moreover, the notion that Saudi Arabia could wage another price war on Russia is an illusion. Saudi Arabia lost the 2020 price war against Russia and furthermore it could hardly raise its production beyond its its current one let alone waging another price war. Therefore, it may be in Saudi's best interest to not get involved for the sake of oil prices, relations with Russia within OPEC+ and the prospect of additional business arising from potential Russian sanctions.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London