• 1 hour South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 4 hours Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 5 hours Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 6 hours Iraq Steps In To Offset Falling Venezuela Oil Production
  • 8 hours ConocoPhillips Sets Price Ceiling For New Projects
  • 3 days Shell Oil Trading Head Steps Down After 29 Years
  • 3 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 3 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 3 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 3 days Venezuela Officially In Default
  • 3 days Iran Prepares To Export LNG To Boost Trade Relations
  • 3 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 4 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 4 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 4 days Rosneft Announces Completion Of World’s Longest Well
  • 4 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 4 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 4 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 4 days Santos Admits It Rejected $7.2B Takeover Bid
  • 5 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 5 days Africa’s Richest Woman Fired From Sonangol
  • 5 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 5 days Russian Hackers Target British Energy Industry
  • 5 days Venezuela Signs $3.15B Debt Restructuring Deal With Russia
  • 5 days DOJ: Protestors Interfering With Pipeline Construction Will Be Prosecuted
  • 5 days Lower Oil Prices Benefit European Refiners
  • 5 days World’s Biggest Private Equity Firm Raises $1 Billion To Invest In Oil
  • 6 days Oil Prices Tank After API Reports Strong Build In Crude Inventories
  • 6 days Iraq Oil Revenue Not Enough For Sustainable Development
  • 6 days Sudan In Talks With Foreign Oil Firms To Boost Crude Production
  • 6 days Shell: Four Oil Platforms Shut In Gulf Of Mexico After Fire
  • 6 days OPEC To Recruit New Members To Fight Market Imbalance
  • 6 days Green Groups Want Norway’s Arctic Oil Drilling Licenses Canceled
  • 7 days Venezuelan Oil Output Drops To Lowest In 28 Years
  • 7 days Shale Production Rises By 80,000 BPD In Latest EIA Forecasts
  • 7 days GE Considers Selling Baker Hughes Assets
  • 7 days Eni To Address Barents Sea Regulatory Breaches By Dec 11
  • 7 days Saudi Aramco To Invest $300 Billion In Upstream Projects
  • 7 days Aramco To List Shares In Hong Kong ‘For Sure’
  • 7 days BP CEO Sees Venezuela As Oil’s Wildcard

Saudis Withdraw From Non-OPEC Meeting, But Odds For Deal Are Still Good

Wall st

Oil prices fell on Friday morning after some bearish comments of Saudi Arabia but the odds of a substantial OPEC deal seem to have improved now Iraq is on board

 

(Click to enlarge)

Friday, November 25, 2016

Oil prices held steady just below $50 per barrel at the end of the week, before falling back a bit as a result of bearish Saudi rhetoric. Iraq added even more momentum to the market in the lead up to the Vienna summit, agreeing to shoulder some of the burden for the cartel’s production cuts. After resisting for weeks, Iraq’s Prime Minister said that his country will participate. “Iraq will cut its output to preserve prices,” Al-Abadi told reporters in Baghdad on November 23. Iraq was one of the largest stumbling blocks to a deal, so things are looking pretty good for some sort of agreement next week. If they succeed, the deal would take effect in January.

OPEC by the numbers. To fall into the range that OPEC set out in Algiers – between 32.5 and 33.0 million barrels per day – OPEC will need to cut between 600,000 and 1.1 million barrels per day. Taking the midpoint, or about 900,000 barrels per day, would go a long way to erasing the global supply surplus.

However, Saudi Arabia is reportedly on board with an aggressive approach: Making cuts of 1.1 mb/d in order to take output down to 32.5 mb/d, plus asking Russia and other non-OPEC countries to contribute another 500,000 to 600,000 barrels per day in reductions. If that were to occur, the agreement could take 1.6 percent of global supplies off the market. OPEC has surprised and disappointed the oil markets many times in the past two years, so nothing should be taken for granted. But if a deal is signed, oil prices could rise substantially. A survey of analysts conducted by The Wall Street Journal finds that oil watchers think prices would rise to $55 per barrel if OPEC succeeds, but could fall to $40 per barrel or less if they don’t. Needless to say, the stakes are high. Related: Tesla’s Solar Roof Market: What’s The Potential?

Rising oil prices a boost to U.S. shale. IEA executive director Fatih Birol sees oil prices climbing to about $60 per barrel if OPEC succeeds in cutting output. That would be a boon to OPEC but it could also provide a spark to U.S. shale, which is already holding up with oil prices below $50 per barrel. Production from the Permian basin in particular will continue to soar if oil prices rise. Already very profitable at today’s prices, the Permian has captured a growing share of global oil investment this year. If output from the U.S. rises, the IEA says the OPEC deal could lead to another downturn in prices within nine months to a year. In other words, the OPEC deal may only provide a short-term boost to prices, which will lead to higher output and another downturn.

Dollar continues to climb. The markets are expecting a near 100 percent chance that U.S. Fed Chair Janet Yellen hikes interest rates in December, with further action expected next year. That is pushing up the value of the dollar and leading to losses for emerging market currencies around the world. The dollar is at its strongest level against a basket of other currencies since 2003, forcing central banks around the world to respond to protect the value of their currencies. The stronger dollar is providing a check on rising commodity prices – oil fell on Friday because of gains for the greenback. Related: Japan Is Aggressively Buying Up Oil And Gas Around The World

China provides aid to Venezuela, takes more oil. Cash-strapped Venezuela turned to China for financial assistance, and China agreed to invest $2.2 billion in the South American OPEC member in exchange for a higher take of its oil production. Due to past investments, Venezuela has been sending some 550,000 barrels per day to China. Between 2007 and 2015 China poured about $65 billion into Venezuela and has been paid back in oil. After the latest agreement is signed in December, China will have the rights to 800,000 barrels per day of Venezuelan oil. The Chinese investment could help stabilize Venezuela’s output by upgrading infrastructure.

Peak oil demand. The Economist added its voice to the growing chorus regarding the prospect of a peak in oil demand. The magazine argues that the world needs to prepare for a post-oil age, even if that era is not yet upon us. Instead of a sharp decline in consumption, The Economist says that the end of oil will be more gradual, and largely due to a shift in investment away from fossil fuels and into alternatives.

OPEC cuts could hurt tanker industry. Fewer tankers filling up and departing from the Middle East will put a dent in the business for oil tankers. Bloomberg estimates that the proposed cuts from OPEC would reduce the equivalent of five supertankers’ worth of crude oil. This comes at a time that the tanker business is struggling from an expanding tanker fleet, which is putting pressure on day rates. Plus, higher oil prices could slightly slow crude oil demand, which could further reduce oil trade.

EPA increases biofuel requirement. The U.S. EPA released final numbers for its 2017 biofuel mandate, handing the oil industry a huge loss. The EPA will require 19.28 billion gallons of biofuels to be blended into the U.S. fuel supply, much higher than the 18.8 billion gallons the agency proposed in May. The figures will require 15 billion gallons of corn-based ethanol and 4.28 billion gallons of more advanced biofuels. The battle over the renewable fuels mandate is one that pits powerful Midwestern farmers against the oil industry.

By Evan Kelly of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • bob on November 25 2016 said:
    you have to be joking- we have been under the rhetoric for a year- only days ago the deal was done but not done. The US owns Iraq and it is in their interest for no deal - several reasons- the geopolitical war against russis- the geoploitical war against iran- the geopolitical war against the Saudis and the desrire to see the US economy rock- cheap oil solves a lot of prtoblems for Trump- see the stock market- it is not all about Trump but the prospect of cheap oil. This is the singular path to the global economy that does not want to see an ounce of inflation right now.
  • WonandHonly on November 26 2016 said:
    Even the captcha for commenting spells ENERGY. Energy is a mutual responsibility. As everyone ha noticed though, recent events show favoritism and not collective efforts. OPEC members should carry the burden together and not only expect one or two nations to while it talks new states about the game. I don't blame Saudi whatsoever for this decision. It's a strong stance. It is in no way Saudi backing away from something in an unjustified manner.
  • Kafantaris on November 26 2016 said:
    Trickle-Down Economics -- Revised: "Higher oil prices lead to a wave of capital that flows into major oil producing countries such as Saudi Arabia. Unable to use all the capital, Saudi Arabia sends the excess savings back into the global financial system." Of course, we merely pay first at the pump.
  • Elasticity on November 26 2016 said:
    Saudi's uggestion does seem aggressive, but more fair as it involves more contribution from more OPEC members- son't you think? OPEC caused an emotional roller coaster for the oil Markets around the world in the past hectic two years. But if a deal is signed, oil prices could rise substantially

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News