Saturday, May 6, 2017

OPEC Runs Out Of Options -- Bid To Boost Oil Prize Fizzles -- Bloomberg -- May 6, 2017

New Poll

With regard to the stories in this post, let's see what readers think. New poll at the sidebar in which we ask whether one thinks the price of WTI will hit $50 by the end of May, 2017.


May 8, 2017: these stories are starting to remind of the Kardashians. A lot of fluff. All that matters: the numbers. The drawdown. And we see the drawdown numbers every Wednesday. Everything else is fluff.

May 8, 2017: CNBC joins in -- agrees that OPEC cuts have not succeeded; Saudi/OPEC mis-played their hand. Even another six-month extension won't help. I have no research staff and am a novice when it comes to the oil and gas sector. A few days ago I suggested that it will take 200 weeks to bring down US inventory to historical levels at the current rate of draw down. And now this:
"OPEC producers have under-estimated the volumes to be taken off the market," said Victor Shum, vice president at IHS Energy.
May 8, 2017: via Twitter --

May 7, 2017: it looks like Saudi Arabia have run the numbers and their storage terminals will still be overflowing at the end of 2017. They need to extend production cuts (wink, wink) while making up the difference with flooding the globe with oil from their storage terminals. Saudi Arabia now suggests they will need to extend production cuts beyond 2017.

May 7, 2017: having gotten caught with its siphon in its overflowing storage tanks, there are indications that Saudi Arabia is now going to actually cut crude oil exports. If so, most likely this is what happened: Saudi Arabia misjudged how much crude oil could be removed from storage based on IEA's optimistic forecast for increasing global demand. Whether they moved as much oil out of storage as they had wanted, seeing no improvement in price, and seeing that they had been caught in one big shell game, Saudi may be actually cutting exports. Ever since the Clinton administration, I've learned how important it is to closely parse announcements. When OPEC said they would cut production, OPEC did not mention anything about using the opportunity to make up the difference by shipping oil from storage. (Remember: the US is doing the same thing -- releasing oil from the SPR, but for very different reasons, and releasing oil from the SPR is of no consequence, the amount is so small that is being released over time.)

By the way, compare the graph at this post (US imported oil from Saudi Arabia) with this graph from the linked story above:

Yes, I know it takes 45 days for Saudi oil to reach the US.

May 7, 2017: less than 24 hours after the original post, Bloomberg had yet another article on the OPEC debacle. I doubt there will be anything new. The lede:
The benefits of OPEC's agreement to cut output have proved elusive. With less than three weeks to go before the group's next meeting, something is very, very wrong as far as oil producers are concerned. And they have no easy solution to put it right.
The graph at the link is pretty amazing:
  • this past week, Brent fell to within 30 cents a barrel of its price before OPEC agreed to cut production (wink, wink) but not exports from crude oil storage
  • even without that brief dip, Saudi Arabia is now earning less from its oil sales that it was before concluding a deal that was meant to kick prices up to $60/bbl
  • part of the problem: Libya back on-line; Libya is exempt from any cuts and any ceiling limits (and Saudi Arabia is exempt from flooding the world with crude oil from storage terminals)
  • the usual canard is repeated: "oil supply is still expected to lag demand by a healthy margin in the second half of the year, resulting in a significant reduction in excess inventory" (at the rate of the US crude oil drawdown last week, it will take 198 weeks to draw down the crude oil inventory in the US to historical levels)
  • unfortunately the tea leaves all suggest global crude oil demand is falling, not increasing
  • the IEA still projects annual average crude oil demand growth this year, 1.3 million bopd; the tea leaves suggest otherwise   
Original Post
Link here.

I'm only interested if there is anything new in the story -- something new that hasn't been posted on the blog in the past four weeks. Let's see:
  • a rebound in US shale output and stubbornly-high stockpiles show the world's three-year glut isn't shifting (nothing new)
  • meeting in Vienna, May 25; most likely OPEC will "keep the course"; the alternatives look even worse (nothing new)
  • if OPEC cuts more, it is likely even more shale supplies might come along (not particularly new)
  • "with OPEC already showing near-perfect compliance in delivering its pledged 1.2 million bopd production cut" -- same old tune
    • OPEC based cuts on run-up in production
    • some countries exempt from any cut and any ceiling
    • Saudi Arabia caught siphoning off crude oil in storage to more than make up any production cut (wink, wink)
  • IEA still predicts a rapid reduction in the supply glut in 2H17; in fact, at the rate of the US drawdown this past week, it will take 200 weeks for US storage to get back to historical levels
  • global fuel stockpiles have actually increased during the first quarter, the IEA estimates (is this new? maybe)
  • "in the US, crude inventories are dropping, but remain near record levels" -- the drop has been trivial; a rounding error
  • "meanwhile, American production has roared back, growing by 523,000 bopd to the highest level in almost two years" -- EIA
  • it seems like EIA and IEA are on different pages (nothing new)
Bullets #9, #10, and #11 -- most noteworthy.

Meanwhile, elsewhere Russia is "crowing" about cutting more than it agreed upon. Regardless of agreements, does this really matter:
  • Under the deal, Russia pledged to reduce its average daily production gradually by 300,000 barrels to 10.947 million bpd from the October level of 11.247 million bpd.
Cutting from 11.247 million bopd to 10.947 bopd -- even before proposed cuts there was that much variation month-to-month. But I'm sure Russia is doing the same thing Saudi Arabia is doing: making up for cuts by taking crude oil out of storage. The whole thing is a shell game.


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