United States fails in keeping oil prices high

No sooner had OPEC Plus depressed market sentiment by admitting a potential rollover of its cuts into 2025, Iran reemerged as the main talking point of the markets.

Having downplayed the Israeli retaliatory strike, the oil markets are now anticipating an Iranian attack on Israel, using a large number of drones from Iraqi territory.

A semblance of geopolitical risk premium has lifted ICE Brent futures ahead of a particularly jittery week when the United States votes for its president.

OPEC Plus postponed its planned increase of oil production, bringing back the 2.2 million barrel per day output under eight countries’ voluntary cuts, citing concerns about soft oil demand, particularly on the heels of China’s slowing down, as well as rising non-OPEC supply.

In an attempt to retain its share in gas market, the US Treasury announced new sanctions imposed on Novatek’s Arctic LNG 2 liquefaction terminal, Russia’s latest LNG project in the Arctic, targeting construction service provider Smart Solutions and four LNG tankers run by newly created UAE firms.

European majors flock into US gas, Norway’s state oil firm Equinor boosted its portfolio of non-operated US shale assets after it bought EQT’s gas interests in the northern Marcellus basin for US$1.25 billion, taking its stake to 40.7% as most of the assets are still operated by Expand Energy.

In an attempt to diversify its energy supplying countries, China’s top driller locked in Key Iraqi Deal. China’s top upstream firm CNOOC signed an exploration and production contract with Iraq to develop the onshore Block 7, with the state-owned firm holding 100% interest over a massive territory covering more than 6,000 km2 in Diwaniyah province.

OPEC oil output increases in July

According to Reuters, OPEC oil output rose in July, as a rebound in Saudi Arabian supply and small increases elsewhere offsetting the impact of ongoing voluntary supply cuts by other members and the wider OPEC Plus alliance.

The Organization of the Petroleum Exporting Countries (OPEC) pumped 26.70 million barrels per day (bpd) in July, up 100,000 bpd from June.

The increase comes despite OPEC Plus keeping in place most of its output cuts until the end of 2025 to bolster the market in the face of tepid demand growth, high interest rates and rising US production.

A meeting of top OPEC Plus ministers on Thursday kept oil output policy unchanged including a plan to start unwinding one layer of output cuts from October, and repeating that the hike could be paused or reversed if needed.

Saudi Arabia provided the largest supply boost last month of 70,000 bpd, as exports rebounded from June when they were lower than expected. Production reached 9 million bpd in July, close to the kingdom's target.

Nigeria had the biggest decline of 30,000 bpd, with exports lower month on month.

Small increases came from Libya and Iran, two of the members not required to cut output, and from Iraq. Iranian output reached 3.22 million bpd, the highest since 2018.

Iran has been boosting exports in the last few years despite US sanctions remaining in place. Iraq's output edged higher with exports increasing month on month, flows data showed and a tanker-tracking source said.

OPEC pumped about 240,000 bpd more than the implied target for the nine members covered by supply cut agreements, with Iraq still accounting for the bulk of the excess, the survey found.

The Reuters aims to track supply to the market and is based on shipping data provided by external sources, LSEG flows data, information from companies that track flows - such as Petro-Logistics and Kpler - and information provided by sources at oil companies, OPEC and consultants.

Iran fourth largest oil exporter in OPEC

Iran has become the fourth largest oil exporter within the Organization of the Petroleum Exporting Countries (OPEC) due to a surge in oil production and export.

Iran's oil and gas condensate exports have now reached their highest level since 2018, when the United States withdrew from the Iran nuclear deal and introduced tough economic sanctions against the country, targeting its oil sales in particular, according to a report by Vortexa, which provides data on the global energy sector.

The report emphasized that Iran's oil and gas condensate exports now account for 9% of OPEC's total crude oil and gas condensate exports.

Iran exported 1.56 million barrels of oil per day from January to May of this year, 250,000 bpd more than Kuwait and Nigeria. This has elevated Iran's ranking to the fourth spot among OPEC's largest crude oil exporters.

Despite Western sanctions, Iran managed to increase its crude oil and gas exports to 1.7 million bpd in May, the highest level in the past five years.

The report cited the rise in Chinese oil demand and the expansion of Iran's oil tanker fleet as the main factors contributing to the surge in Iran's oil exports.

Ever since the late Iranian President Ebrahiam Raisi took power in August 2021, the country’s oil exports have been on an upward trajectory.

The rise in Iran’s oil exports has taken place despite tough US sanctions which aimed to choke off Iran’s oil industry as a main source of revenue for the Islamic Republic.

Financial Times cited figures by data company Vortexa last month noting that Iran was exporting more oil than at any time for the past six years, giving its economy a US$35 billion a year boost.

The report said that Tehran sold an average of 1.56 million barrels a day during the first three months of 2024, almost all of it to China and its highest level since the third quarter of 2018.

“The Iranians have mastered the art of sanctions circumvention,” said Fernando Ferreira, head of a geopolitical risk service at the Rapidan Energy Group in the United States.

Iran’s oil minister Javad Oji said in March that oil exports had “generated more than US $35 billion” in the preceding year.

On another occasion, he said that while Iran’s enemies wanted to stop its exports, “today, we can export oil anywhere we want, and with minimal discounts”.

 

Iraq:: Chinese to explore oil and gas

According to Reuters, Chinese companies won bids to explore five Iraqi oil and gas fields on Saturday in a licensing round for hydrocarbon exploration that was primarily aimed at ramping up gas production for domestic use.

An Iraqi Kurdish company also took two of the 29 projects up for grabs in the three-day licensing round across central, southern and western Iraq, which for the first time includes an offshore exploration block in the country's Arab Gulf waters.

Iraq aims to lure billions of dollars of investments to develop its oil and gas sector as it looks to ramp up local petrochemicals production and end imports of gas from neighbouring Iran that are currently key to producing power.

More than 20 companies pre-qualified for the licensing round, including European, Chinese, Arab and Iraqi groups.

Notably, there was no US oil majors involved, even after Iraqi Prime Minister Mohammed Shia met with representatives of US oil firms during an official visit to the United States last month.

Zhongman Petroleum and Natural Gas Group (ZPEC) took the northern extension of the Eastern Baghdad field, in Baghdad, and the Middle Euphrates field that straddles the southern Najaf and Karbala provinces, the oil ministry said.

China's United Energy Group Ltd won a bid to develop the Al-Faw field in southern Basra, while ZhenHua won a bid to develop Iraq's Qurnain field in the Iraqi-Saudi border region and Geo-Jade won a bid to develop Iraq's Zurbatiya field in the Wasit.

Two oil and gas fields were taken by Iraq's KAR Group - the Dimah field in eastern Maysan province, and the Sasan & Alan fields in Iraq's northwestern Nineveh province - the ministry said.

Around 20 more projects are open for bidding on Sunday and Monday.

Falah Al-amri, the Iraqi prime minister's advisor for oil and gas issues, said the government hoped the new projects would raise oil production to 6 million barrels per day by 2030 from around 5 million now.

The government also wants the projects to produce enough natural gas so that, along with plans to all-but eliminate gas flaring by 2030, Iraq could end imports.

"It is too early to talk about (gas) exports. We want to get self-sufficient," Al-amri told Reuters.

Iraq, OPEC's second-largest oil producer after Saudi Arabia, at one time had targeted becoming a rival to the Gulf Arab kingdom with output of over a tenth of global demand.

But its oil sector development has been hampered by contract terms viewed as unfavourable by many major oil companies as well as recurring conflict and political paralysis.

Growing investor focus in recent years on environmental, social and governance criteria have also had an effect.

Western oil giants such as Exxon Mobil Corp and Royal Dutch Shell Plc have departed from a number of projects in Iraq while Chinese companies have steadily expanded their footprint.

 

 

 

Iranian oil output and price improve

The Organization of Petroleum Exporting Countries (OPEC) in its latest monthly report has said that Iran’s oil production volume increased by 28,000 barrels per day (bpd) to 3.188 million BPD in March 2024 and heavy oil price also increased by US$3.0 during this period.

The OPEC total crude oil production volume reached 26.604 million bpd in March 2024, showing a 3,000 bpd increase as compared to a month before.

According to this report, the price of each barrel of Iran’s heavy crude oil in March 2024 reached US$83.48 BPD.

The average oil price of OPEC in March 2024 reached US$84.22, showing an increase of US$2.99 BPD.

Back in January, a report released by the US Department of Energy stated that Iran has been the top OPEC member in terms of production increase in 2023, with an increase of 330,000 bpd.

The US Energy Information Administration (EIA) affiliated with the Department of Energy mentioned in its latest report that the total oil production of Iran was estimated at 2.87 million bpd at the end of 2023. Iran’s oil production was 2.54 million bpd in 2022.

The figures show that total OPEC oil production was 26.89 million bpd in 2023 which shows 630,000 barrels fall year on year. OPEC produced 27.52 million bpd in 2022.

This report has put Iran's oil production in the last month of last year at 3.17 million bpd. Iran was the third-largest OPEC producer after Saudi Arabia and Iraq in December 2023.

The 330,000-bpd increase in Iran’s 2023 oil production indicates that sanctions have been ineffective on Iran's oil industry.

Earlier in June 2023, Bloomberg reported that the production and export of Iranian oil in 2023 reached record highs since the country came under US sanctions more than five years ago.

The report published in late June 2023 stated that Iran was shipping the highest amount of crude in almost five years despite US sanctions.

Bloomberg cited energy analysts as saying that Iran’s oil exports have surged to the highest level since the US unilaterally re-imposed sanctions on the country in 2018.

A Reuters report, also said in June last year Iranian crude shipments continued to rise in 2023 with higher shipments to China, Syria, and Venezuela. The report quoted consultants, shipping data, and a source familiar with the matter.

A large chunk of Iran’s crude oil goes to China which is the world’s major importer of energy. Several European customers including Germany, Spain, and Bulgaria also imported oil from Iran.

Iran has not released official figures about its oil exports over the past years amid efforts to evade Washington’s sanctions.

 

OPEC oil output falls in March

According to Reuters, OPEC oil output declined in March 2024, reflecting lower exports from Iraq and Nigeria against a backdrop of ongoing voluntary supply cuts by some members agreed with the wider OPEC Plus alliance.

OPEC Plus is scheduled to hold an online joint ministerial monitoring committee meeting on April 03 to review the market and members' implementation of output cuts they have already agreed to extend. However, the panel is unlikely to recommend any oil output policy changes.

The Organization of the Petroleum Exporting Countries pumped 26.42 million barrels per day (bpd) in March 2024, down 50,000 bpd from February 2024, based on shipping data and information from industry sources.

Several members of OPEC Plus, which includes OPEC, Russia and other allies, made new cuts in January 2024 to counter economic weakness and increased supply outside the group. Producers agreed last month to keep them in place until the end of June.

An OPEC Plus panel of key ministers meets on Wednesday to review the market and members' production, and is not expected to recommend any policy changes ahead of the group's next full meeting set for June 01, 2024.

The biggest output reductions in March came from Iraq and Nigeria. Iraq promised to lower exports to make up for pumping above its OPEC target, a pledge that would cut shipments by 130,000 bpd from February.

OPEC fell about 190,000 bpd short of its targeted cuts in March, largely because of Iraq, Nigeria and Gabon pumping more than they had aimed for.

Gulf producers Saudi Arabia, Kuwait and the United Arab Emirates each kept output close to their voluntary targets, as did Algeria.

Output in Iran, exempt from quotas, edged lower. Iran is still pumping near a five-year high reached in November after posting one of OPEC's biggest output increases in 2023 despite US sanctions still in place.

There was no significant rise in output from any OPEC country. Libya, also exempt from quotas, pumped an extra 20,000 bpd as the country's output returned to normal after disruption in February.

Reuters aims to track supply to the market and is based on shipping data provided by external sources, LSEG flows data, information from companies that track flows - such as Petro-Logistics and Kpler - and information provided by sources at oil companies, OPEC and consultants.

 

 

 

 

Shrinking number of OPEC members

Lately, Angola has relinquished its OPEC membership. Earlier Qatar, Indonesia had left the organization. These departures are not likely to have any considerable impact on total world market supply.

Generally, it seems OPEC is facing three challenges these days. The first one is the withdrawal of members. Over the past years, OPEC’s efforts to persuade other oil-producing countries to join it have been unsuccessful.

During the current year, OPEC repeatedly invited Guyana to become a member but the South American country rejected the invitation, apparently based on the assumption that it wants to maximize oil production and profits during an era in which oil demand could be in decline over the coming years.

Not only OPEC has not been able to attract new members it also faces new potential quits. After Qatar decided to exit the organization, at least for the past couple of years, UAE has been the largest threat to the unity of the organization.

The disarray between UAE and OPEC led by Saudi Arabia reached its climax two years ago when the country insisted on a higher baseline to its quota to allow for more domestic production.

If the UAE decides to exit the organization it could weaken the influence of the organization as far as it concerns setting oil prices because the Emirates is OPEC’s third-largest oil producer.

The second challenge of OPEC is that since more than a decade ago, three of its main members have played no role in making decisions in the ministerial meetings of the organization.

These three countries' position in OPEC, as the hawks of the organization, has declined considerably mainly due to the US sanctions.

Two of these countries are non-Arab founding members of the organization: Iran and Venezuela. And the third one is Libya as the most serious advocate of higher prices strategy among the African members of OPEC.

Libya's policies at OPEC were close to Iran and Venezuela which more and less were close to each other at OPEC against Saudi Arabia which mainly defended its market share.

When the three countries' influence eroded at OPEC either through the US sanctions or via the toppling of Qadhafi during the Arab Spring unrest, Riyadh probably felt that these developments have paved the way for its unchallenged dominance in OPEC’s decision-making meetings.

Their absence as members who are being excluded from the quota and limiting oil production mechanism may have weakened Saudi Arabia's stance in setting desired oil prices which has to cut oil production voluntarily in the hope of boosting oil prices.    

The read challenge OPEC faces is not from within but from outside. This challenge culminated at the COP28 in UAE when a great number of participating countries asked for fossil fuel phase-out.

Oil once lubricated the wheels of industrialized countries' economies and was the world's economic growth engine. Now it is considered, mostly by industrialized countries, as something redundant that humans should get rid of as soon as possible to save the planet against global warming, and OPEC’s reasoning that humans should get rid of emissions, not fossil fuels, apparently remains unheard.

 Even though the term phase out was eliminated from the final COP28 communiqué, 198 countries reached an agreement that emphasizes transitioning away from fossil fuels, and United Nations (UN) Secretary-General Antonio Guterres said, “To those who opposed a clear reference to phase out of fossil fuels during the COP28: Whether you like it or not, fossil fuel phase-out is inevitable.”

Now OPEC through cooperation with ten non-OPEC oil producers called OPEC Plus tries to maintain its influence in the oil market but without that, it faces internal and external challenges that threaten the power once it enjoyed in the world oil market. 

 

Russia and Saudi Arabia urge all to join oil cuts

Saudi Arabia and Russia, the world's two biggest oil exporters, on Thursday called for all OPEC+ members to join an agreement on output cuts for the good of the global economy only days after a fractious meeting of the producers' club.

Hours after Russian President Vladimir Putin went to Riyadh in a hastily arranged visit to meet Saudi Crown Prince Mohammed bin Salman, the Kremlin released a joint Russian-Saudi statement about the conclusion of their discussions.

The Organization of the Petroleum Exporting Countries (OPEC), Russia and other allies agreed last week to new voluntary cuts of about 2.2 million barrels per day (bpd), led by Saudi Arabia and Russia rolling over their voluntary cuts of 1.3 million bpd.

"In the field of energy, the two sides commended the close cooperation between them and the successful efforts of the OPEC+ countries in enhancing the stability of global oil markets," said the statement released by the Kremlin.

"They stressed the importance of continuing this cooperation, and the need for all participating countries to join to the OPEC+ agreement, in a way that serves the interests of producers and consumers and supports the growth of the global economy," the statement, which was in Russian, added.

The Russian version used the word join while an English translation of the statement, also released by the Kremlin, used the word adhere to the OPEC+ agreement.

Saudi state news agency SPA said that the crown prince, known as MbS, and Putin had emphasized in their meeting the need for OPEC+ members to commit to the group's agreement.

Oil market sources said that such an explicit public remark from the Kremlin and the kingdom about "joining" cuts appeared to be an attempt to send a message to members of the OPEC+ club who had not cut or not cut enough.

The biggest member of OPEC excluded from the cuts is Iran, the economy of which has been under various US sanctions since 1979 after the seizure of the US embassy in Tehran.

Iran is boosting production and hopes to reach output of 3.6 million bpd by March 20 next year.

After his return to Moscow from Saudi Arabia, Putin on Thursday held talks with Iranian President Ebrahim Raisi in the Kremlin, along with Russia's Deputy Prime Minister Alexander Novak and Defence Minister Sergei Shoigu.

Mystery still surrounds Putin's trip to Riyadh and Abu Dhabi, on which he was escorted by four Russian fighter jets, and it was not immediately clear what particular issue was so important for Putin to make a rare overseas trip.

The Kremlin said Putin and MbS also discussed the conflicts in Gaza, Ukraine and Yemen, the Iranian nuclear program and deepening defence cooperation.

MbS has sought to reassert Saudi Arabia as a regional power with less deference to the United States. Saudi Arabia is the biggest purchaser of US arms.

Putin, who sent troops into Ukraine in February 2022, says Russia is engaged in an existential battle with the West and has courted allies across the Middle East, Africa, Latin America and Asia amid Western attempts to isolate Moscow.

"With regard to the crisis in Ukraine, the Russian side expressed appreciation for the humanitarian and political efforts undertaken by His Royal Highness Mohammed bin Salman," the joint statement said.

Putin and MbS, who together control a fifth of the oil pumped each day, were shown smiling and engaging in an effusive handshake as Putin emerged from his car in the Saudi capital.

Both MbS and Putin want and need high prices for oil, the lifeblood of their economies. The question for both is how much of the burden each should take on to keep prices aloft, and how to verify the burden.

At the talks with MbS, Putin said that a planned visit by the prince to Russia had been changed at the last minute, prompting him to visit Riyadh.

"We awaited you in Moscow," Putin told MbS with a smile.

"I know that events forced a correction to those plans, but as I have already said, nothing can prevent the development of our friendly relations."

Putin then said: "But the next meeting should be in Moscow."

The crown prince said through a Russian translator that he was ready to do that.

"Then we are agreed," Putin said.

 

 

Saudi Arabia extends oil production cuts

The Ministry of Energy announced that Saudi Arabia plans to prolong its one million barrels per day voluntary production cut, initiated in July 2023, until the end of the first quarter in 2024.

This collaborative decision involves coordination with select OPEC Plus nations, maintaining the Kingdom's production at around 9 million barrels per day until March 2024.

“A phased return of these additional cut volumes will be executed, contingent upon market conditions, to bolster overall market stability,” an official source at the ministry said.

The announcement emphasized that this voluntary cut is an augmentation to the earlier disclosed 500 thousand barrels per day reduction, declared in April 2023, which is slated to persist until the culmination of December 2024.

The source underscored that this supplementary voluntary cut is part of the collective precautionary measures taken by OPEC Plus countries to fortify efforts aimed at upholding the stability and equilibrium of global oil markets.

 

OPEC Plus to cut output by one million bpd

OPEC Plus oil producers are likely to agree output cuts of at least one million barrels per day (bpd) for early next year led by Saudi Arabia rolling over its voluntary additional cut and smaller curbs by others, two delegates told Reuters ahead of a virtual OPEC+ meeting on Thursday.

Saudi Arabia, Russia and other members of OPEC Plus pump more than 40% of the world's oil, or some 43 million bpd. They currently have cuts of about 5 million bpd in place.

According to Reuters a preliminary agreement has been reached for a cut of more than one million bpd.

This would include Saudi Arabia extending the voluntary cut of one million bpd it has had in place since July plus additional contributions from other members, sources said.

It was unclear how much other members would contribute, sources said. A third source said a new reduction would be agreed on Thursday without providing a figure.

"It depends on other group participants, could be near or more," the third source said when asked about the possible one million bpd cut.

With Saudi Arabia's voluntary output cut of one million bpd and a Russian export cut of 300,000 bpd both set to expire at the end of this year, the focus is on plans for 2024.

Benchmark Brent crude futures were up to US$83.95 a barrel at 1221 GMT on Thursday, on track for a third day of gains on expectations of fresh cuts from OPEC Plus.

Earlier, two delegates involved in the discussions said fresh cuts for 2024 could potentially take one million to two million bpd in production off the market in the first quarter of 2024.

RBC Capital Markets analyst Helima Croft said that Saudi Arabia, which began its additional voluntary one million bpd in July, would not want to shoulder additional cuts alone.

"We could envision a scenario where Russia and Saudi Arabia roll over their cut through the first quarter of 2024 and assemble a coalition of the willing individual producers prepared to make voluntary adjustments," she added.

The focus is on lower output with prices down from near US$98 in late September and concerns brewing over weaker economic growth in 2024 and expectations of a supply surplus.

The International Energy Agency (IEA) this month forecast a slowdown in 2024 demand growth as the last phase of the pandemic economic rebound dissipates and as advancing energy efficiency gains, expanding electric vehicle fleets and structural factors reassert themselves.

OPEC Plus sources this week said discussions had been proving difficult, as evidenced by the group postponing their meeting which was scheduled for November 26.

Plans now call for an OPEC only ministers’ virtual meeting on Thursday at 1100 GMT and a wider OPEC Plus meeting at 1400 GMT.

Sources said the delay was sparked by disagreement over output quotas for African producers; a matter they said had largely been resolved.

The OPEC Plus meeting coincides with the opening of the United Nations' COP28 climate summit being hosted by OPEC member the United Arab Emirates.

 

 

 

OPEC Plus may opt for deeper supply cut

OPEC Plus is most likely to consider additional oil supply cuts when the group meets on November 26. It may be prudent approach because oil prices have dropped by almost 20% since September 2023.

Brent crude has fallen to US$79 per barrel from US$98 in September this year. Concern about subdued demand and a possible surplus next year have kept prices under pressure, despite OPEC Plus production cuts and conflict in the Middle East.

Saudi Arabia, Russia and other members of OPEC Plus have already pledged total oil output cuts of 5.16 million barrels per day, or about 5% of daily global demand, in a series of steps that started in late 2022. The cuts include 3.66 million bpd by OPEC Plus and additional voluntary cuts by Saudi Arabia and Russia.

There is a growing perception that the existing curbs might be not enough and the group will likely consider if deeper cuts could be implemented.

"It is not pleasant to see that market volatility is greater ahead of the next meeting while fundamentals overall remain solid," one of the OPEC+ Plus sources said.

Ministers are likely to express some thoughts on what to do more, to secure a stable trend.

Ministers from OPEC Plus, which comprises of the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, are scheduled to meet on November 26. The group already has a plan to curb supplies by 3.66 million bpd into 2024 made during its last meeting in June.

The price drop has deepened this week, even after OPEC in a monthly report said the oil-market fundamentals remained strong despite negative sentiment and stuck to its relatively high 2024 oil demand growth forecast.

The International Energy Agency, which also updated its outlook this week, has a lower 2024 demand growth forecast and said the market could shift to a surplus in the first quarter.

While some believe more cuts are required, two others say it is too early to say whether further cuts will be discussed. Some believe they may opt for "wait and see".

Most of OPEC Plus members depend on oil as a primary source of government income.

Analysts believe Saudi Arabia's oil cut extension raises the risk of economic contraction this year.

Saudi Arabia has repeatedly stressed during previous meetings it wants to see strong compliance with cuts so all members share the burden of producing less.

At its last policy meeting in June, OPEC Plus agreed on a broad deal to limit supply into 2024 and Saudi Arabia pledged a voluntary production cut for July of one million bpd that it has since extended to last until the end of 2023.

Some analysts including Energy Aspects expect Saudi Arabia to keep the voluntary cut to at least the first quarter of 2024.

 

 

Iranian oil output hits 3.15 million bpd

Reportedly, Iran has managed to push its oil output to 3.15 million barrels per day (bpd), the highest since 2018, the year Washington re-imposed sanctions on the country.

Analysts say the higher Iranian exports appear to be the result of Iran's success in evading U.S. sanctions and Washington's discretion in enforcing them.

As reported, OPEC oil output rose for a second straight month in September, led by increases in Nigeria and Iran despite ongoing cuts by Saudi Arabia and other members of the wider OPEC Plus alliance to support the market.

Last month, the Organization of the Petroleum Exporting Countries (OPEC) pumped 27.73 million bpd, up 120,000 bpd from August. Production in August had risen for the first time since February.

The rise in September was led by Nigeria, which has been battling with crude theft and insecurity in its oil producing region.

Iran pumped more, with output hitting the highest level since 2018.

Iraq and the United Arab Emirates increased output slightly, while Angolan supply showed the largest decline in the group of 50,000 bpd due to a drop in exports.

OPEC's output is still undershooting the targeted amount by about 700,000 bpd, mainly because Nigeria and Angola lack the capacity to pump as much as their agreed level.

 

Iran becomes 3rd top oil producer among OPEC members

Iran continued to increase its oil production in August to reach three million barrels per day (bpd) and stand at the third place among OPEC top producers, according to figures released in the organization’s latest monthly report.

OPEC data shows that Iran’s oil output increased by 143,000 bpd or 5% in August as compared to production figures reported in July, Shana reported.

The figures showed that Iran had regained its position as the third largest oil producer in OPEC in August after Saudi Arabia and Iraq.

Iran posted the largest increase in oil production in OPEC last month, as the country is exempt from output cuts introduced by the alliance to help boost international oil prices.

Iranian heavy oil prices rose to US$87.58 per barrel in August from US$81.48 reported in July, OPEC data showed.

The figures prove earlier reports suggesting Iranian oil production and exports had reached multi-year record levels in August despite US sanctions that restrict the country’s ability to engage in normal trade of oil products.

Estimates by international energy firms published earlier this month had suggested that Iran’s oil exports were nearly 3.15 million bpd in August as oil exports from the country reached over 2 million bpd.

Private refiners in China accounted for a bulk of oil purchases from Iran last month as shipments rose to an all-time record of 1.5 million bpd.

Iran’s Oil Minister Javad Oji said earlier that Iran’s oil production will reach 3.4 million bpd by late September.

 

OPEC Plus keeps oil output levels unchanged

The Joint Ministerial Monitoring Committee (JMMC) of OPEC Plus affirmed on Friday the current levels of oil production of the group and didn’t make any recommendation to change the output.

Saudi Minister of Energy Prince Abdulaziz bin Salman chaired the 49th Meeting of the JMMC via videoconferencing.

The JMMC reviewed the crude oil production data for the months of May and June 2023 and noted the overall conformity for participating OPEC and non-OPEC countries of the Declaration of Cooperation (DoC). The committee urged all the participating countries to conform and fully adhere to the compensation mechanism.

The committee reaffirmed the commitment of its member countries to the DoC which extends to the end of 2024 as agreed in the 35th OPEC and non-OPEC Ministerial Meeting (ONOMM) on June 04, 2023. It also decided to adjust the frequency of the meetings to every two months for the JMMC and the authority of the JMMC to hold additional meetings, or to request an OPEC and non-OPEC Ministerial Meeting as agreed on in the 33rd OPEC and non-OPEC Ministerial Meeting (ONOMM) on October 05, 2022.

The committee will continue to closely assess market conditions noting the willingness of the DoC member countries to address market developments and their readiness to take additional measures at any time in tandem with the strong cohesion of OPEC and non-OPEC countries.

The committee also expressed its full recognition and support for the efforts of Saudi Arabia to support the stability of the oil market and reiterated its appreciation for the Kingdom’s additional voluntary cut of one million barrels per day which it extended to the month of September.

The committee acknowledged the Russian Federation's additional voluntary reduction of exports by 300,000 barrels per day for the month of September.

The next meeting of the JMMC is scheduled for October 04, 2023.

Is bidding farewell to fossil oil possible?

The western mantra to get rid of fossil oil is getting louder. There are suggestions that countries have to take extra measures to contain carbon emission. In this race the developed countries, particularly United States and its allies are promoting clean energy i.e. solar, wind and gas. In the mean time the pressure is mounting on the less developed countries, currently using fossil oil and coal.

The International Energy Agency (EIA) expects US$2.8 trillion of investment in energy this year, with roughly 60% of that going toward clean energy. In the past two years, clean energy investment has risen 24% as compared to 15% for fossil fuels.

Producers of fossil fuels reaped huge profits in 2022, but less than half their cash flow is going towards new supply. Unsurprisingly, Middle Eastern producers lead in terms of spending on new supply.

A question arises, why the sudden surge in clean energy investment? The main explanations include volatility in fossil fuel markets, renewed interest in energy security, rising appreciation of the disruption created by climate events and greater societal interest in slowing climate change.

The largest increases in spending on clean energy by far have come from China, the European Union and the United States. Despite high interest in clean energy, the transition faces many challenges, chief among them the complexity and cost of developing and growing new energy supply chains.

The ongoing energy disruptions in the wake of the hostilities in the Ukraine have had a dramatic impact on export of LNG from the United States.

In the newly released edition of the Natural Gas Monthly, published by the Energy Information Agency (EIA), part of the US Department of Energy, the changing dynamics of the US export trades are described in detail.

In the publication, the EIA notes, “During the first four months of 2022, the United States exported 74% of its liquefied natural gas (LNG) to Europe, as compared to an average of 34% a year ago.”  It adds, “In 2020 and 2021, Asia had been the main destination for US LNG exports, accounting for almost half of the total exports.” Overall, US LNG exports saw an 18% increase as compared to 2021.

Exports have averaged 11.5 billion cubic feet per day (Bcf/d) during the first four months of 2022, aided by the opening of new export facilities. The increase in US LNG exports was driven by additional export capacity at Sabine Pass (Train 6) and at nearby Calcasieu Pass, with a facility that came online in early March. The Sabine Pass terminal loaded nearly 110 LNG cargoes during Q1 2022. Venture Global’s Calcasieu terminal, Louisiana began exporting in March, when five cargoes were loaded - four to Europe and one to Japan.  

The move towards European destinations had already begun before the late February invasion of Ukraine, with the huge inventory draw downs underway in advance of the winter season. The EIA said, “The United States became the largest LNG supplier to the European Union and the United Kingdom in 2021. They said that LNG imports from the United States to the EU and the UK more than tripled during January to April, 2022, as compared to 2021, averaging 7.3 Bcf/d.”

The EIA pointed out, “During the first four months of 2022, US LNG exports to Asia declined by 51% to 2.3 Bcf/d as compared to 4.6 Bcf/d in 2021.”

Its analysts also alluded to a drop-off in moves to China due to the extremely high Asian LNG prices and pandemic-related lockdowns. China received only six LNG cargoes from the United States in January–April 2022 or just 0.2 Bcf/d as compared to 1.2 Bcf/d in 2021. Japan and South Korea also saw declines.

OPEC Plus oil quota reform increases dominance of gulf producers

Saudi Arabian Energy Minister Prince Abdulaziz bin Salman earlier this month outlined one of the biggest reforms at OPEC in recent years and presented it as a reward for countries that invest in their oil industry.

The change clears the way for giving larger production quotas to OPEC Gulf members such as Saudi Arabia, the United Arab Emirates and Kuwait at the expense of African nations such as Nigeria and Angola.

Production quotas and baselines, from which production cuts are calculated, have been a sensitive subject within OPEC for decades as most producers want a higher quota so they can earn more from oil exports.

The shake-up is likely to become more extreme in the next few years as Middle Eastern state oil majors ramp up investments while production falls in African nations that have struggled to attract foreign investment.

Gulf producers, the holders of the little spare capacity in the global oil market, have long dominated OPEC.

Their power and influence has already increased in the last 15 years with their rising capacity, while African production has fallen as foreign investments have shrunk.

Unlike Gulf producers, African producers rely heavily on investment from international oil companies. Those companies have shunned Africa in recent years in favour of investment in the US shale patch and in prolific giant oilfields elsewhere such as offshore Brazil and Guyana.

In May, Saudi Arabia, the UAE and Kuwait's share of total OPEC production was over 10% higher than it was 15 years ago at 55%, according to OPEC production figures. Nigeria and Angola's total share over the same period has shrunk by over 3% to below 9%.

For Nigeria, capacity continues to be restricted by operational and security issues, combined with low investment levels, leading to decline, analysts at consultancy Wood Mackenzie said.

New field developments and recent discoveries in Angola will not be enough to stem long term capacity declines, they added.

In contrast, Saudi Arabia and the United Arab Emirates have plans in place to significantly boost their production capacity to 13 million bpd and 5 million bpd, respectively, by 2027 from current levels of about 12 and 4 million.

Fellow Gulf producer Kuwait on June 18 said it would boost its production capacity by 200,000 bpd by 2025 to reach 3 million bpd.

Capacity additions from the three Gulf countries over the 2020-25 period total a combined 1.2 million bpd, double the capacity that Nigeria and Angola are projected to lose over the same period, Reuters calculations find.

The two West African countries have lost nearly a quarter of their production capacity since 2019 as a result of underinvestment and security issues.

At its June 04 meeting, the Organization of the Petroleum Exporting Countries and allies, led by Russia, (OPEC+) overhauled production quotas for the majority of its members.

"In the final analysis what this agreement will achieve for all of us is that those who invest, not this year, but the years to come, 2024 and 2025 and moving forward, there will be a recognition for their investment," Prince Abdulaziz said.

While the majority of members of OPEC Plus got a lower production target, the UAE's was higher.

Richard Bronze, Head of Geopolitics at Energy Aspects, said one of the reasons behind the change was to address OPEC's previous credibility issues when policy changes were not necessarily reflected on oil markets.

"It meant that the actual supply increase or decrease resulting for a quota change would be far smaller than the announced figure, fuelling doubts in the market about the ability of the group to manage market fundamentals," he said.

 

 

Oil production cut decision is precautionary, Saudi Energy Minister

Saudi Energy Minister Prince Abdulaziz bin Salman said that the decision to cut oil production is a precautionary one. “We will continue to hedge as long as we do not see clarity and stability in the market and our mission is to give the oil market clear data for stability,” he said while speaking to reporters after the end of the OPEC Plus meeting.

Prince Abdulaziz pointed out that independent agencies will work with OPEC Plus countries with regard to evaluating their production in 2024, “Independent agencies will end the previous controversy over production data in OPEC Plus.”

Regarding Russia’s data, Prince Abdulaziz said, “we discussed with Russia the issue of its production and asked it to clarify its data, and we have strengthened the concept of transparency with Russia about its oil production figures.”

In a press conference following the meeting of the OPEC Plus coalition on Sunday, the minister said that the OPEC Plus agreement that was reached on Sunday is unprecedented, and that independent agencies will be assigned to verify the production capacity of each country.

He emphasized that the OPEC meeting was constructive and contributed to the stability of oil markets. “The recent measures reflect our responsibility as a mature central bank for oil. We want to prove to the world that we have the tools to stabilize the oil market and our decision helps to enhance the stability of the markets and prevents volatility, because the stability of the markets is the most important thing we have,” he said.

“We are not worried about supplies in the coming year. We do not target specific oil prices, but rather we aim to reduce market volatility,” the minister said while stressing that Russia is adhered to its commitments regarding oil production.

On Saudi-American relations Prince Abdulaziz said, “Our relationship with the United States has been going on for 80 years, and we look forward to more cooperation. All American officials are welcome to Saudi Arabia,” he said.

The Organization of the Petroleum Exporting Countries (OPEC) announced that the OPEC Plus group decided at its meeting on Sunday to adjust the bloc’s production level to 40.4 million barrels per day, starting from January 2024 and for a period of one year.

The alliance said, in a statement published by OPEC on its website, that it was agreed to hold the ministerial meeting of the group that includes OPEC members and non-OPEC producers, including Russia, every six months. The statement added that it was also agreed to hold the next meeting of the OPEC Plus group in Vienna on November 26.

OPEC Plus reached a deal on output policy after seven hours of talks and decided to reduce overall production targets from 2024 by a further total of 1.4 million barrels per day.

Transition from OPEC to OPEC Plus

OPEC was founded in 1960 in Baghdad by Iraq, Iran, Kuwait, Saudi Arabia and Venezuela with an aim of coordinating petroleum policies and securing fair and stable prices. Now, it includes 13 countries, which are mainly from the Middle East and Africa. They produce around 30% of the world's oil.

There have been some challenges to OPEC's influence over the years, often resulting in internal divisions, and a global push towards cleaner energy sources and a move away from fossil fuels could ultimately diminish its dominance.

OPEC became OPEC Plus in 2016 after joining hands with 10 of the world's major non-OPEC members, including Russia.

OPEC+ Plus represents around 40% of world oil production and its main objective is to regulate the supply of oil to the world market. The leaders are Saudi Arabia and Russia, which produce around 10 million barrels per day (bpd) of oil each.

OPEC member states' exports make up around 60% of global petroleum trade. In 2021, OPEC estimated that its member countries accounted for more than 80% of the world's proven oil reserves.

Because of the large market share, the OPEC decisions affect oil prices. Its members meet regularly to decide how much oil to sell on global markets.

As a result, when they lower supply when demand falls, oil prices tend to rise. Prices tend to fall when the group decides to supply more oil to the market.

On April 02, 2023 OPEC Plus agreed to deepen crude oil production cuts to 3.66 million barrels per day (bpd) or 3.7% of global demand, until the end of 2023, which helped to push up oil prices by about US$9 a barrel to above US$87 per barrel over the following days, but Brent prices have since lost those gains.

During the 1973 Arab-Israeli War, Arab members of OPEC imposed an embargo against the United States in retaliation for its decision to re-supply the Israeli military, as well as other countries that supported Israel. The embargo banned petroleum exports to those nations and introduced cuts in oil production.

The oil embargo pressured an already strained US economy which had grown dependent on imported oil. Oil prices jumped, causing high fuel costs for consumers and fuel shortages in the United States. The embargo also brought the United States and other countries to the brink of a global recession.

In 2020, during COVID-19 lockdowns around the world, crude oil prices slumped. After that development, OPEC Plus slashed oil production by 10 million barrels a day, which is equivalent to around 10% of global production, to try to bolster prices.

The current members of OPEC are: Saudi Arabia, United Arab Emirates, Kuwait, Iraq, Iran, Algeria, Angola, Libya, Nigeria, Congo, Equatorial Guinea, Gabon and Venezuela.

Non-OPEC countries in the global alliance of OPEC Plus are represented by Russia, Azerbaijan, Kazakhstan, Bahrain, Brunei, Malaysia, Mexico, Oman, South Sudan and Sudan.

Fuel prices likely to fall globally

Global prices of diesel and motor gasoline have corrected significantly by 46% and 50% since the start of the calendar year 2023, due to rising concerns of global recession majorly emanating from Western/European front, to presently stand at US$86/US$90 per barrel, for gasoil and gasoline respectively.

Refiner’s main input, crude oil selloffs (Arab Light/ WTI/ Brent down 9.5%/9.8%/10.7% since start January 2023) have also remained rampant throughout CYTD as an overall direct repercussion of US-Fed’s hawkish stance (debt ceiling conundrum, banking crisis) resulting in significant stockpile build up over the previous week, softer demand in China amid COVID concerns, availability of low cost Russian crude towards China and India and finally easing prices of RLNG globally (US$9.3/mmbtu, down 60%YoY), resulting in power generation demand for diesel to fall drastically.

Moving forward, analysts expect gasoline cracks to gain strength and remain elevated with the onset of summer driving season beginning 1st June in the western front, where-in last time both gasoline/gasoil spreads peaked during July last year.

Overall, heightened geopolitical tensions will continue to provide major support to prices and in case OPEC Plus stands firm on it supply cut decisions, the prices may possibly increase further.

Naturally, domestic refinery margins have fallen sharply from their multi year highs from US$26/ US$45/bbl for MS/ HSD back in June2022, to presently stand at US$-0.2/2.6/bbl (down 100%/94%).

This has subsequently pushed domestic ex-refinery prices down by 10%/ 27% from peaks of PKR224/ PKR276 per liter in last summer, for MS/ HSD, even with the currency depreciating by 42% during this time.

Using the aforementioned space, IFEM margin was pushed into the positive territory as well which had been mostly negative for several months now.

Local refiners are also expected to reap benefits of the aforementioned fuel inflation expected during the summer season, which pushed the domestic cracking spreads as high as US$25/ US$45 barrel last year, for MS/ HSD respectively. Assuming Arabian Gulf gasoline/ gasoil prices increase by +10% from current levels, this is expected to raise domestic MS/ HSD prices by PKR18/ PKR21 per liter, respectively.

Outlook: Moving forward, sector profitability may remain firm in the near term as refined product margins are expected to remain strong during 2Q/3QFY23 alongside healthy inventory gains amidst increasing ex-refinery prices, but may eventually cool off post summers and the commencement of Middle Eastern capacities (one million bpd capacity inclusion beginning October 2323).

Although, worsening furnace oil yields in the wake of falling FO demand may be a risk to look out for as FO crack spreads presently stand at negative US$28/bbl.

 

OPEC to welcome Iran’s return to oil market

OPEC will welcome Iran’s full return to the oil market when sanctions are lifted, the secretary general of the Organization of the Petroleum Exporting Countries (OPEC) told the Iranian oil ministry's website SHANA on Monday.

Iran is an OPEC member, although its oil exports are subject to US sanctions aimed at curbing Tehran's nuclear program.

Secretary General Haitham Al Ghais, who is visiting Tehran for the first time, added that Iran has the capacity to bring on significant production volumes within a short period of time.

"We believe that Iran is a responsible player amongst its family members, the countries in the OPEC group. I’m sure there will be good work together, in synchronization, to ensure that the market will remain balanced as OPEC has continued to do over the past many years," SHANA's English-language website cited him as saying.

Asked about OPEC’s voluntary production cut and its effect on oil prices, Ghais said, "In OPEC...we don’t target a certain price level. All our actions, all our decisions are made in order to have a good balance between global oil demand and global oil supply."

In a surprise move in early April, Saudi Arabia and other members of OPEC Plus, which comprises OPEC and allies including Russia, announced further oil output cuts of around 1.2 million barrels per day, bringing the total volume of cuts by OPEC Plus to 3.66 million barrels per day, according to Reuters calculations.

Saudi Arabia, the kingpin of OPEC, and Iran announced in March that they would restore diplomatic relations after years of hostility, in a deal brokered by China, the world's second largest oil consumer.