Fast And Furious -- As Oil Trends Below $40, Again -- October 3, 2020

Most (if not all) of these links will be to writers over at oilprice. Going through them quickly, the tea leaves suggest:

• OPEC+ back to increasing production, albeit slowly
• production increase for many different reasons: Russia, Libya, Iran

Russia:

• Russia: production up slightly, but inconsequential; link to Irina Slav;
• producing about 10 million bpd
• Production of oil and condensates over the first nine months of the year averaged 10.35 million bpd, down by 7.8 percent on the respective period of 2019. Earlier this year, Russia’s oil production fell by a double-digit rate for the first time in more than two decades as a result of the OPEC+ agreement. Later, however, as the extended oil cartel relaxed the cuts, it began climbing again.
  

OPEC: Thursday, the day before President Trump taken to hospital for coronavirus --

• WTI: fell 6% to $37.70; Brent fell 5% to $40.009
• catalyst for drop said to be OPEC+'s September seaborne exports, "which jumped to 22.84 million bbls per day from 22.11 in August, 2020" -- link to Julianne Geiger;
  
• I don't know about you, but I just can't get excited about a "jump" from 22.11 to 22.84 million; first of all, it appears to be false precision, and one tanker departing September 1st rather than August 31st, changes everything;
• I think it has everything to do with continued demand destruction;
• what other news coincided with the drop in oil price? US airlines announcing huge cuts just after Disney did the same; both actions (airlines/Disney) suggest another six months of continued pessimism

OPEC economies in deep doo-doo:

• Gulf nations led by Saudi Arabia have been putting on a brave face and touting the strength of their economies, claiming they can withstand any scale of shocks during the oil crisis. Unfortunately, a growing body of evidence suggests pretty much the opposite: the Gulf economies are in dire straits thanks to their overreliance on oil. With oil prices stuck at $40/barrel, S&P Global Ratings has estimated that GCC (Gulf Cooperation Council) central government deficits will reach about $490 billion cumulatively between 2020 and 2023 while government debt will surge by a record-high $100 billion in the current year -- link to Alex Kimani.
• breakeven points for selected OPEC countries:
• Saudi Arabia: $76.10; expected to decrease to $65 next year
• UAE: $69.10
• Qatar: $39.90 
• Kuwait: $61.10
• Bahrain: $95.60
• Oman: $86.80
  
• how long will this last? GS is most optimistic and they suggest $65 by 3Q21
• Reuters survey suggests Brent will only get back to $50.45 by 2021 

Bottom line: for me, the announcements by Disney and the airlines, almost on the same day suggest the movers and shakers don't see any let-up in demand destruction for at least more months; with the pandemic, I don't think anyone can forecast farther out than six months.

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Hurricane Laura

For the archives. 

Hurricane Laura shut in largest oil production volume since 2008. Link to Charles Kennedy. Any impact o prices for the consumer?  I certainly didn't see anything. 

You have to read to the very end to read this:

Despite leading to the largest shut-in of crude oil production in 12 years, Hurricane Laura resulted in much smaller shut-ins of production compared to Hurricanes Gustav and Ike in 2008 and Hurricane Katrina in 2005.

And the shut-ins occurred when US (and probably the world) had record amounts of oil in storage, and demand-destruction due to the Chinese Flu pandemic had not abated. 

And finally, for the archives:

The EIA estimates that the Gulf of Mexico’s crude oil production fell to 1.4 million bpd in August, the lowest monthly output since early 2015. EIA expects production in the region to recover to nearly 2.0 million bpd by December 2020 and average 1.8 million bpd for 2020.