Speaking Of Pinocchio -- February 1, 2017

Updates

Later, 9:19 a.m. Central Time: if the writer over at the Financial Times says there is no "swing  producer" for crude oil, Reuters' John Kemp begs to differ:

• Saudi Arabia has been forced to return to the role of swing producer in the oil market, despite the country's insistence for three decades it would never play that role again
• Saudi Arabia and its allies in the Gulf Cooperation Council account for the majority of production cuts made so far (the "Willie" Sutton analogy: why did he rob banks? because that was where the money was)
• by cutting their own output deeply, Saudi Arabia and its allies have masked the low level of compliance from the rest of the organization
• outside OPEC, Russia, so far, has delivered only about a third of its promised cut of 300,000 bopd
• as a swing provider, Saudi was formally given that role in March, 1983
• Saudi Arabia is the only producer that exports enough crude oil and has the centralized control to exercise some degree of market power in the oil market

One wonders if John Kemp (above) and the Financial Times (below) are looking at two sides of the same coin. Saudi is the only producer that can quickly cut production to support/raise global prices; the US shale operators can fairly quickly offset any cut in Saudi production, but really can't do much about "flooding" the market to bring the price down.

I guess it depends on the definition of "swing producer."

Original Post

 

Why I love to blog: I've always questioned the notion that US shale was the "swing producer." Now, from the Financial Times: for the first time in years, the global oil market has no swing producer.  The article is a nice overview of how we got where we are, and where we are headed; an article worthy to be archived (an op-ed by a consulting firm exec; a former senior director on the White House National Security Council, yada, yada, yada.

Some believe recent pledges by OPEC and Russia to restrain production mark the return of supply management.

Hardly. Since these producers began talking about restraint last February, they added around 1.4m barrels per day to the glut.

Their recent pledges to trim production from historically high levels resemble ad hoc, collective supply restraint agreements that sprang up occasionally since oil’s earliest days by producers spooked by price busts. They sometimes enjoyed temporary success but invariably fell apart due to supply growth outside and cheating within members’ ranks.

OPEC's own analysts, and those at the US Energy Information Administration, project these pledges will not dent the towering inventory glut.

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Pinocchio

From The Wall Street Journal: the Saudi oil minister praises Trump's energy policy, welcomes increased US production. Minister says Saudi Arabi could increase its US oil-industry investments.

Saudi Aramco needs strong US market for successful IPO.

From the article:

Mr. Falih dismissed any suggestion that OPEC was a “foe” of U.S. energy interests.

“We’re not the foes,” he said. “People are recognizing that OPEC is a force for good.”

Okay.  Pinocchio.

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India Plans To Form A Big, Huge, Giant National Oil Company

From Ruters/Rigzone, data points:

• India imports 80% of the oil it needs
• wants to cut that number to 67% 
• India has about a doze state-run oil and gas companies: separately not big enough to take on a global role
• will look to combine some (all?) of them
• on another note, India will cut the import tax for LNG in half: from 5% to 2.5%