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. 

 

Oil price tumbles nearly 4% as OPEC Plus meeting delayed

Crude oil prices fell nearly 4% on Wednesday as OPEC Plus producers delayed a meeting on output planned for Sunday, raising questions about the future course of crude production cuts. Brent crude futures declined 3.7%, to US$79.40 a barrel by 1313 GMT and WTI crude futures were down 3.82%, to US$74.80.

OPEC Plus delayed its ministerial meeting scheduled for November 30, OPEC said in a statement, without giving a reason for the postponement.

Earlier on Wednesday, Bloomberg News reported that the OPEC Plus meeting could be delayed for an unspecified period of time after Saudi Arabia expressed its dissatisfaction with other members about their output numbers.

Analysts had predicted before the delay that OPEC Plus was likely to extend or even deepen oil supply cuts into next year.

Both Brent and WTI oil benchmarks have fallen for four straight weeks.

 

Saudi Arabia extends voluntary oil production cut

Saudi Arabia has decided to continue its voluntary cut of one million barrels per day, initially implemented in July 2023 and previously extended, until the end of December 2023.

This decision maintains the Kingdom’s production at approximately 9 million barrels per day for the month of December 2023, an official statement from the Ministry of Energy read.

The official source emphasized that a comprehensive review of this voluntary cut’s efficacy will take place next month, determining whether to extend, deepen, or adjust the production cut.

It was highlighted that this measure is an additional step following the voluntary cut announced by Saudi Arabia in April 2023, persisting until December 2024.

The source clarified that this supplementary voluntary cut aligns with OPEC Plus countries’ collective efforts to ensure the stability and equilibrium of global oil markets.

Saudi Arabia extends voluntary cut

Saudi Arabia on Wednesday extended its one million barrel per day (bpd) voluntary crude oil production cut until the end of the year 2023.

An official source at the Ministry of Energy announced that the Kingdom would continue with its voluntary oil output cut of one million bpd for the month of November and until the end of the year and that it would review the decision again next month.

The Kingdom’s production for November and December will be approximately 9 million bpd, the ministry said in a statement, carried by the Saudi Press Agency. “This voluntary cut decision will be reviewed next month to consider deepening the cut or increasing production,” the statement said.

Saudi Arabia first implemented the additional voluntary cut in July and has since extended it on a monthly basis. The cut adds to 1.66 million barrels per day of other voluntary crude output declines that some members of OPEC have put in place until the end of 2024.

The source also explained that this reduction is in addition to the voluntary reduction that the Kingdom had previously announced in April 2023 and which extends until the end of December 2024.

Russia also pledged to voluntarily reduce exports by 500,000 barrels per day in August and by 300,000 barrels per day in September. The cuts are described as voluntary because they are outside of OPEC Plus official policy, which commits every nonexempt member to a share of production quotas.

The ministry source confirmed that this additional voluntary reduction comes to strengthen the precautionary efforts made by OPEC Plus countries with the aim of supporting the stability and balance of oil markets.

 

 

Iran oil exports exceed 2 million bpd in August

Iran oil exports continue to increase in August, surging above two million barrels per day (bpd) which is their highest since the beginning of the year, Bloomberg reported citing TankerTrackers data.

It was already known that Iran's shipments were surging, but the data for August would represent a marked leg higher if maintained for the remainder of the period. The flow rate for the past 28 days shows shipments running at a rate of 2.1 million barrels a day, the Bloomberg report said.

As reported, TankerTrackers’ satellite images show a new surge in Iran's flows in August amid the reduction in the supplies of other top exporters.

Bloomberg added that the increase in Iran's shipments will boost global supply when Saudi Arabia and Russia curb output.

Earlier this month, Bloomberg reported that China’s oil imports from Iran have been soaring in August so that the shipments are expected to reach 1.5 million bpd, the highest since 2013.

Citing estimates from data intelligence firm Kpler, Blomberg put China’s imports of Iranian oil during the January-July 2023 period at 917,000 bpd on average.

Iran has been ramping up oil exports this year as it becomes more geopolitically assertive, with most of the shipments heading to China, Bloomberg said.

In late July, Kpler said that Iran’s oil shipments to China have more than tripled over the past three years despite the US sanctions on the country and the increase in Russia’s shipments to the Asian country.

According to the data analyzing firm, Iranian crude exports to its major trade partner have been hovering around one million bpd in 2023, while the figure was roughly 325,000 bpd in 2020.

Also, the International Energy Agency (IEA) in a recent report titled ‘Oil 2023’ confirmed Iran's daily export of one million barrels of oil to China, saying, “Despite severe financial restrictions, Iran managed to increase its crude oil production by about 140,000 barrels per day in 2022 to an average of 2.5 million barrels per day. It seems that Tehran has maintained its crude sales to China, which has been around one million barrels per day since the third quarter of last year.”

According to official data, Iranian oil production also increased in the current year so that in May the country’s oil output reached 2.9 bpd, 350,000 bpd more than in 2022.

Earlier in April, Bloomberg reported, “Chinese private refineries are buying more Iranian oil despite the rising competition for supplies from Russia.”

“So-called teapots are prioritizing the flows, with Russian supplies getting pricier as mainstream buyers such as state-owned Chinese refiners and Indian processors take a greater share,” the report read.

In March, China’s imports of Iranian crude and condensate jumped 20%MoM to 800,000 barrels a day, and are on track to extend gains in coming months, Emma Li, an analyst with data intelligence firm Vortexa told Bloomberg that month.

While Iranian oil has long been sanctioned by the US, refiners in China have proved to be a consistent outlet.

Most Iranian oil used to go to state-owned refineries but the private refiners in Shandong especially are now running the show, said Homayoun Falakshahi, senior crude oil analyst at Kpler.

 

US losing power to control crude oil prices

Historically, OPEC, led by Saudi Arabia had remained under the US pressure to move crude oil prices, the way the super power wanted. The recent history includes, Iran-Iraq war, imposition of sanctions on Iran and Venezuela, political turmoil in Nigeria and Libya and the latest being imposition of sanctions on Russia. Lately, there are growing evidences that the US power to maneuver crude oil prices is on the decline.

Oil prices tumbled about one percent on Monday as concerns about China's faltering economic recovery and a stronger dollar, after seven weeks of gains driven by tightening supply from OPEC Plus cuts.

Brent crude futures slipped 93 cents, or about 1.1% to US$86.46 a barrel by 1237 GMT, while US West Texas Intermediate (WTI) fell US$1.03, or roughly 1.2%, to US$82.81 a barrel.

"Crude has been in overbought territory for some time now, defying expectations of a correction. It has been singularly focused on US economic optimism, to the exclusion of the increasingly stronger headwinds blowing in the eurozone and China," said Vandana Hari, founder of oil market analysis provider Vanda Insights.

"A rebalancing is overdue but it may need a reality check in the markets stateside," she said.

China's sluggish economic recovery and a stronger US dollar could depress prices, but OPEC Plus has indicated it would do whatever it takes to tighten supply and stabilize markets, CMC Markets analyst Tina Teng said.

The US dollar index extended gains after a slightly bigger increase in US producer prices in July lifted Treasury yields despite expectations the Federal Reserve is at the end of hiking interest rates

A stronger dollar pressures oil demand by making the commodity more expensive for buyers holding other currencies.

Meanwhile, supply cuts by Saudi Arabia and Russia, part of the alliance between the Organization of the Petroleum Exporting Countries and their allies, or OPEC Plus, are expected to erode oil inventories over the rest of this year, potentially driving prices even higher, the International Energy Agency said in its monthly report on Friday.

Last week’s encouraging demand estimates, falling OPEC supply, declining inventories and mitigated inflationary pressure, said Tamas Varga of oil broker PVM, "is a warning signal that unless China joins the party the path upwards will be paved with pitfalls".

Separately on Monday, a Shell spokesperson said exports of Nigeria's Forcados crude oil resumed on Sunday, roughly a month after loadings of the medium sweet grade were suspended because of a potential leak at the export terminal.

The suspension of Forcados loadings contributed to Nigeria becoming the second-biggest contributor to the drop in OPEC crude oil output in July.

 

Crude oil on track for biggest monthly gains

According to Reuters, crude oil prices hovered near three-month highs on Monday, set to post their biggest monthly gains in over a year on expectations that Saudi Arabia would extend voluntary output cuts into September and tighten global supply.

Brent crude futures dipped 9 cents to US$84.90 a barrel by 0005 GMT while US West Texas Intermediate (WTI) crude was at US$80.41 a barrel, down 17 cents.

The September Brent contract will expire later on Monday. The more active October contract was at US$84.23 a barrel, down 18 cents.

Brent and WTI settled on Friday at their highest levels since April, gaining for a fifth straight week, as tightening oil supplies globally and expectations of an end to US interest rate hikes supported prices. Both the benchmarks are on track to close July with their biggest monthly gains since January 2022.

Saudi Arabia is expected to extend a voluntary oil output cut of one million barrels per day (bpd) for another month to include September, analysts said.

"Oil prices are up 18% since mid-June as record high demand and Saudi supply cuts have brought back deficits, and as the market has abandoned its growth pessimism," Goldman Sachs analysts said in a July 30 note.

"We still expect the extra 1 million bpd Saudi cut to last through September, and to be halved from October."

The bank maintained its Brent forecast at US$86 a barrel for December and expects prices to rise to US$93 in the second quarter of 2024.

Goldman Sachs estimated that global oil demand rose to a record 102.8 million bpd in July and it revised up 2023 demand by about 550,000 bpd on stronger economic growth estimates in India and the United States, offsetting a downgrade for China's consumption.

"Firmer demand is driving a moderately larger deficit in H2 2023 than expected, averaging 1.8 million bpd, and a modest 0.6 million bpd deficit in 2024," it said.

Exxon Mobil CEO Darren Woods said the company expects record oil demand this year and next year, and that this may help boost energy prices in the second half of the year.

In the US, energy firms in July cut the number of oil rigs for an eighth straight month by one to 529, Baker Hughes said in its weekly report on Friday.

 

 

 

Iranian oil exports hit five year high

Iranian crude exports and oil output have hit new highs in 2023 despite US sanctions, according to consultants, shipping data and a source familiar with the matter, adding to global supply when other producers are limiting output.

Tehran's oil exports have been limited since former US President Donald Trump in 2018 exited a 2015 nuclear accord and reimposed sanctions aimed at curbing oil exports and the associated revenue to Iran's government.

Exports have risen during the term of his successor President Joe Biden. Iranian and Western officials have said the US is holding talks with Iran to sketch out steps that could limit the nuclear program.

Iranian crude exports exceeded 1.5 million barrels per day (bpd) in May 2023, the highest monthly rate since 2018, according to Kpler, a provider of flows data. These were around 2.5 million bpd in 2018, before the US withdrawal from the nuclear deal.

Iran said in May it has boosted its crude output to above 3 million bpd. That's about 3% of global supply and would be the highest since 2018, according to figures from the Organization of the Petroleum Exporting Countries (OPEC).

A source familiar with the matter told Reuters earlier this month output was still at this level.

The International Energy Agency this week put Iran's May production at 2.87 million bpd, close to Iran's official figure.

The rise from Iran comes as OPEC Plus, which includes OPEC, Russia and other allies, is cutting output to support the oil market, where expectations that economic weakness will dent demand have pressured prices.

Other analysts say Iran's production and exports have risen. SVB International, a consultant, estimates crude production hit 3.04 million bpd in May, up from 2.66 million bpd in January. Exports of crude and condensate were 1.93 million bpd in May.

"Sanctions are in place but perhaps not fully implemented or monitored," said Sara Vakhshouri of SVB, who has previously said during Biden's term there hasn't been any serious crackdown or action against Iran's oil exports.

"Also all of these supply volumes are in the dark market, where there is no transparency and so these are not reflected in formal global supply and export data."

On the issue of whether the US is strictly enforcing the sanctions, the US State Department and Treasury did not immediately respond to requests for comment.

China is Iran's biggest customer while volumes also head to Syria and Venezuela, according to analysts and shipping data.

OPEC+ Plus agreed on June 4 a wide-ranging deal to limit oil supply into 2024. Iran is not required to make cuts as, together with Venezuela and Libya, it has an exemption. Nigeria is not exempt but has faced internal challenges in raising output.

Analysts at JP Morgan in a report this week said OPEC+  Plus needed to cut more. They lowered their Brent oil-price forecast for 2023 to US$81 a barrel from US$90, saying rising supply was offsetting demand growth.

"Within the broader OPEC Plus alliance, supply has been also rising outside the core members," the analysts at JP Morgan said, and revised up their production expectations for Venezuela, Nigeria and Iran by almost 600,000 bpd from November last year.

"Invariably, to make room for this supply growth, OPEC Plus needs to cut more, were the alliance to adhere to the market management strategy."

 

 

 

 

 

 

crude oil prices fall on potential Iran deal

Oil prices fell US$3 a barrel on Thursday as demand weakness and a report that the United States and Iran may be approaching a deal on oil exports outweighed expectations of tighter Saudi supply and a potential pause to US interest rate hikes.

Oil fell on a news report, citing sources, that Iran and the US are nearing a temporary deal that would trade some sanctions relief in exchange for reducing Iran's uranium enrichment.

Brent crude was down US$2.2, or 2.86%, at US$74.64 a barrel by 1644 GMT, having earlier dropped as much as US$3.  WTI fell by US$2.40, or 3.3%, to US$70.12.

A larger than expected rise in US gasoline inventories also raised concern over demand, while US crude stockpiles registered a small decline of 451,000 barrels.

At an OPEC Plus meeting on Sunday, Saudi Arabia said it will cut its crude output by one million barrels per day in July on top of a broader deal to limit supply into 2024 as the producer group seeks to boost flagging prices.

"With the OPEC Plus meeting out of the way, focus is now shifting towards the next move the Fed will make when it meets next week," said Tamas Varga of oil broker PVM.

There is growing consensus that the central bank will skip a rate hike, which could lift oil prices even before falling supply starts draining global oil inventories, Varga added.

Economists polled by Reuters expect that the US Fed will not raise interest rates at its June 13-14 meeting. But a significant minority expects at least one more increase this year.

Still, a surprise rate increase in Canada gave investors their second reminder of the week, following the Australian central bank's monetary policy tightening, that the surge in global interest rates is not done yet.

The US dollar was slightly weaker on Thursday, making oil cheaper for buyers holding other currencies.

Both oil benchmarks settled up about 1% on Wednesday, supported by the Saudi plan, though gains remained capped by rising US fuel stocks and weak Chinese economic data.

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.

OPEC Plus still controls oil supply

The surprise oil output cuts announced on Sunday by OPEC plus members illustrate their greater power over the market, given limited supply growth by other producers such as US shale firms and still-growing demand despite the energy transition.

Oil has jumped to US$85 a barrel since members of the Organization of the Petroleum Exporting Countries and allies including Russia announced production cuts of about 1.16 million barrels per day (bpd), adding to curbs already in place.

While OPEC or OPEC Plus decisions to cut output in the past have drawn warnings that higher prices and lower OPEC Plus output would encourage US shale producers to pump more, officials have not voiced such concerns recently.

Goldman Sachs said it sees elevated OPEC pricing power - the ability to raise prices without significantly hurting its demand - as the key economic driver, and estimates the production cut will raise OPEC  Plus revenues.

"One thing is for certain, OPEC is in control and driving price and US shale is no longer viewed as the marginal producer," said James Mick, senior portfolio manager at Tortoise Capital Advisors.

"OPEC wants and needs a higher price, and they are back in the driver's seat to obtaining their wishes."

US shale oil drillers over the last two decades helped to turn the United States into the world's largest producer. But the gains in output are slowing and executives warn of future declines.

US oil and gas activity stalled in the first quarter, according to a survey, with some respondents citing higher costs and interest rates. OPEC has this year been lowering its US shale oil output forecast, having also done so in 2022.

An OPEC Plus source, asked if OPEC Plus is in the driver's seat when it comes to the oil market now said, "We are not in the passenger seat".

OPEC+ does not have a target for oil prices. The Saudi Arabian energy ministry said the voluntary output cut from the kingdom, the kingpin of OPEC Plus, was a precautionary measure aimed at supporting oil market stability.

OPEC sources have cited a lack of sufficient investment to increase supply as likely to support prices this year.

Investment is rebounding after taking a hit during the pandemic. According to the International Energy Forum (IEF), oil and gas upstream capital spending rose 39% in 2022 to US$499 billion, the highest level since 2014 and the largest ever year-on-year gain.

But, the IEF said, annual upstream investment will need to increase to US$640 billion in 2030 to ensure adequate supplies.

OPEC is pumping almost 1 million bpd less than its current output target, according to its own figures and other estimates, with notable shortfalls in Nigeria and Angola from which Western oil companies have moved away in recent years.

While non-OPEC producers are still expected to pump more in 2023, the forecast of a supply increase of 1.44 million bpd falls short of expected world demand growth of 2.32 million bpd, according to OPEC forecasts.

The International Energy Agency, which represents 31 countries including top consumer the United States, also expects demand growth to exceed supply growth, although to a smaller extent than OPEC.

In OPEC's view, investment cuts after oil prices collapsed in 2015-2016 due to oversupply; along with a growing focus by investors on economic, social and governance (ESG) issues - such as tackling climate change - have led to a shortfall in the spending needed to meet demand.

OPEC Secretary General Haitham Al Ghais, in comments to Reuters last year, attributed slower shale growth to factors including an increase in investor caution and the impact of ESG issues on the industry.

"The scope for supply growth outside of OPEC+ members is limited and in combination with tighter conditions expected later this year even before this cut was announced, there is now greater upside risk to prices," said Callum Macpherson, head of commodities at Investec.

 

OPEC Plus likely to stick to its output quota

OPEC Plus is likely to stick to its existing deal to cut oil output at a meeting on Monday, five delegates from the producer group told Reuters, after oil prices recovered following a drop to 15-month lows.

Oil has recovered towards US$80 a barrel for Brent crude after falling to near US$70 on March 20, as fears ease about a global banking crisis and as a halt in exports from Iraq's Kurdistan region curbs supplies.

OPEC Plus, which comprises the Organization of the Petroleum Exporting Countries and allies led by Russia, is due to hold a virtual meeting of its ministerial monitoring panel, which includes Russia and Saudi Arabia, on Monday.

"It is hard to expect any new development," one of the delegates said of Monday's talks. Another said the Kurdistan curbs and recent price drops were not sufficiently important to affect the overall OPEC Plus policy path for 2023.

Three other OPEC Plus delegates also said any policy changes were unlikely on Monday. After those talks, the next full OPEC Plus meeting is not until June.

Falling oil prices are a problem for most OPEC Plus members because their economies rely heavily on oil revenue.

Even so, OPEC Plus delegates did not raise any suggestion of further action to support the market after the recent price drop and predicted prices would stabilize - which they have since shown signs of doing.

Last November, OPEC Plus reduced its output target by 2 million barrels per day - the largest cut since the early days of the COVID-19 pandemic in 2020. The same reduction applies for the whole of 2023.

Saudi Arabia's energy minister has said OPEC Plus will stick to the reduced target until the end of the year.

 

OPEC Plus likely to stick to output plan

OPEC Plus is likely to stick to its deal on output cuts of 2 million barrels per day (bpd) until the end of the year 2023, even after a banking crisis sent crude prices plunging, three delegates from the producer group told Reuters.

Oil prices hit 15-month lows on Monday in response to the banking crisis that followed the collapse of two US lenders and resulted in Credit Suisse being rescued by Switzerland's biggest bank UBS.

Brent crude was trading around US$75 a barrel on Wednesday morning.

Last October OPEC Plus, which comprises the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, agreed steep output cuts of 2 million bpd from November until the end of 2023 despite major consumers calling for increases to production.

That decision helped to push Brent close to $100 a barrel, but prices have come under pressure since then as rising interest rates to combat high inflation threaten to stymie oil demand growth.

Falling oil prices are a problem for most of the group's members because their economies rely heavily on oil revenue.

Russian Deputy Prime Minister Alexander Novak on Tuesday said that Moscow will continue with a 500,000 bpd production cut it announced last month, lasting until the end of June.

"This is only a unilateral cut of Russia," one of the delegates said.

"No changes for the group until the end of year," he added.

Another delegate added that no further cuts were planned by the group.

A third delegate said the recent slump in oil prices was related to speculation in the financial market, not market fundamentals.

The heads of top oil traders and hedge funds that spoke at an industry event this week said that they expected oil prices to strengthen by the end of the year as continued easing of COVID-19 restrictions in China drive up demand in the world's biggest oil importer.

Pierre Andurand, founder of hedge fund Andurand Capital, was the most bullish and forecast a potential Brent oil price of US$140 a barrel by the end of the year.

In its most recent monthly report, OPEC upgraded its forecast for Chinese oil demand growth this year but maintained its projection for global demand growth at 2.32 million bpd.

OPEC Plus is due to hold a virtual meeting of its ministerial committee, which includes Russia and Saudi Arabia, on April 3 before a full ministerial meeting in Vienna on June 04, 2023.

 

OPEC+ terms oil price drop financially driven

OPEC Plus attributes this week's slide in oil prices to a more than one-year low to be driven by financial fears, not any imbalance between demand and supply, and expects the market to stabilize, four delegates from the oil producer group told Reuters.

Oil sank to a 15-month low on Wednesday, with Brent crude below US$72 a barrel, on concerns about contagion from a banking crisis. Crude stabilized on Thursday after Credit Suisse was thrown a financial lifeline by Swiss regulators.

"It's purely financially driven and has nothing to with the demand and supply of oil," one of the delegates said, asking not to be named. OPEC Plus is most likely ‘wait and see’ in expectation that the situation will normalize soon.

Three other delegates from the OPEC+ Plus producer group comprising the Organization of the Petroleum Exporting Countries (OPEC), Russia and other allies, made similar remarks.

The comments will dampen any speculation that OPEC Plus is concerned about weakening prices and might consider further steps to support the market. The group's next policy meeting is not until June, though an advisory panel of key ministers meets on April 03.

One of the delegates said OPEC's latest monthly oil market report, released on Tuesday with an upgraded demand forecast for China, pointed to a sound balance between supply and demand.

"We are focusing on market fundamentals," another of the sources said.

Last November, with prices weakening, OPEC Plus reduced its output target by 2 million bpd - the largest cut since the early days of the COVID-19 pandemic in 2020. The same reduction applies for the whole of 2023.

Ministers from Algeria and Kuwait this week praised the decision and Saudi Arabia's energy minister told Energy Intelligence that OPEC Plus will stick to the reduced target until the end of the year.

Saudi crude exports slip to five month low in November 2022

Saudi Arabia's crude oil exports fell to a five-month low in November 2022, while production also slipped, data from the Joint Organizations Data Initiative (JODI) showed on Thursday.

The kingdom's crude exports fell about 6.3% to 7.28 million barrels per day (bpd) in November 2022 from 7.77 million bpd in October 2022, marking the first reduction in exports in the last six months.

The world's largest oil exporter's crude production fell to 10.47 million bpd in November 2022 from 10.96 million bpd in the previous month.

Saudi's domestic crude refinery throughput decreased by 19,000 bpd to 2.660 million bpd in November 2022, while direct crude burn rose 49,000 bpd to 429,000 bpd.

OPEC oil output rose in December 2022, a Reuters survey found on Wednesday, despite an agreement by the wider OPEC Plus consent to cut production targets to support the market.

OPEC Plus, which comprises the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, last month had agreed to stick to a 2 million bpd oil output cut.

Chinese oil demand rose by nearly one million bpd from the previous month to 15.41 million bpd in November 2022, its highest since February 2022, the data showed.

OPEC said on Tuesday Chinese oil demand would rebound this year due to relaxation of the country's COVID-19 curbs and drive global growth, and it sounded an optimistic note on the prospects for the world economy in 2023.

Saudi Arabian state oil producer Aramco is discussing investments in petrochemicals with Chinese companies, Asharq reported citing an interview by the company's chief executive with Bloomberg.

Lately, oil prices have been caught in a tug-of-war between fears of a possible US recession and optimism over China's demand outlook.

 

 

US to become net exporter of crude oil in 2023

The United States has become a global crude oil exporting power over the last few years, but exports have not exceeded its imports since World War II. That could change next year.

Sales of US crude to other nations are now a record 3.4 million barrels per day (bpd), with exports of about 3 million bpd of refined products like gasoline and diesel fuel. The United States is also the leading liquefied natural gas (LNG) exporter, where growth is expected to soar in coming years.

The United States consumes 20 million barrels of crude a day, the most in the world, and its output has never exceeded 13 million bpd. Until recently, the idea that it would be anything but a big crude importer was folly.

Last month, the US government data showed net US crude oil imports fell to 1.1 million barrels per day (bpd), the lowest since record keeping began in 2001. That is down sharply from five years ago, when the United States imported more than 7 million bpd.

Factors changing that equation this year include sanctions hurting Russia's exports of oil and natural gas following its invasion of Ukraine, and Washington's massive release of oil from emergency reserves to combat spiking gasoline prices.

"Russia's invasion of Ukraine has spurred new demand for US energy and should push oil exports above imports late next year assuming shale output accelerates," said Rohit Rathod, market analyst at energy researcher Vortexa.

To become a net exporter of crude, the United States needs either to boost production or curtail consumption. US petroleum demand is expected to rise 0.7% to 20.51 million bpd next year, meaning production has to be rise.

The United States already produces more oil than any other country in the world including Saudi Arabia and Russia. US shale fields are aging and production growth this year has been sluggish. Overall output should reach a record 12.34 million bpd next year - but only if prices are lucrative enough to encourage oil drillers to pump more.

European refiners have snapped up US grades to offset the loss of Russian oil, and with U.S. crude's deeper discounts to global benchmarks, Asian refiners have stepped up purchases to 1.75 million barrels per day, data analytics firm Kpler said.

Export terminal operators are rushing to boost their capacity to better service the giant tankers that can carry more than 2 million barrels of oil.

"Russia has proven to be an unreliable supplier," said Sean Strawbridge, Chief Executive of the largest US oil export facility, Port of Corpus Christi. "That really creates a wonderful opportunity for American producers and American energy."

Corpus Christi could see a 100,000 bpd increase in exports next year, Strawbridge said, on top of the record shipments of 2.2 million bpd in October.

Analysts said net exports could taper off if numerous countries worldwide fall into a recession, hampering demand, and if further relaxation of sanctions on Venezuelan crude oil boosts that country's shipments.

 

US shale oil output to grow at snail's pace

Oil output from the Permian shale basin in January is set to touch a record 5.6 million barrels per day (bpd), said US forecast on Monday, but the increase is a third of September's pace.

Output in the biggest US shale oil basin is set to rise by about 37,000 bpd, the smallest gain in seven months, based on projections from the US Energy Information Administration (EIA) in its monthly drilling productivity report.

Gains slowed as some of the largest firms are warning of overworked oilfields and less productive new wells.

Overall US output is forecast to reach a record 9.32 million bpd in January, according to the EIA, up only 94,500 bpd over the prior month. In August, the month-over-month increase was 207,500 bpd.

Legacy oil production change, which excludes output from new wells, will show steeper declines in all major shale producing regions in January. Production from new wells, defined as one that began producing for the first time in the previous month, also is expected to fall.

In the Bakken region of North Dakota and Montana, the EIA forecast oil output next month will rise 21,000 bpd to 1.22 million bpd, the largest total since November 2020.

In the Eagle Ford shale in South Texas, output will rise 10,000 bpd to 1.24 million bpd in January, its highest total volume since April 2020.

Natural gas production also is expected to grow by 535 million cubic feet per day to a record 96.28 billion cubic feet of gas per day. US gas production is rising sharply amid growing global need for the fuel.

In the biggest shale gas basin, Appalachia in Pennsylvania, Ohio and West Virginia, January output will rise to 35.53 bcfd, the highest since hitting a record 36 bcfd in December 2021.

Gas output in the Permian and the Haynesville field in Texas, Louisiana and Arkansas will rise to record highs of 21.39 bcfd and 16.41 bcfd in January, respectively.

EIA said producers drilled 1,005 wells in November, the most since March 2020. Total drilled-but-uncompleted (DUC) wells rose by 22 to 4,443 in November, the first monthly increase since June 2020

 

OPEC Plus sticks to oil output targets

OPEC Plus agreed to stick to its oil output targets at a meeting on Sunday as the oil markets struggle to assess the impact of a slowing Chinese economy on demand and a G7 price cap on Russian oil on supply.

The decision comes two days after the Group of Seven (G7) nations agreed a price cap on Russian oil.

OPEC Plus which comprises the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, angered the United States and other Western nations in October when it agreed to cut output by 2 million barrels per day (bpd), about 2% of world demand, from November until the end of 2023.

Washington accused the group and one of its leaders, Saudi Arabia, of siding with Russia despite Moscow's war in Ukraine.

OPEC Plus argued it had cut output because of a weaker economic outlook. Oil prices have declined since October this year due to slower Chinese and global growth and higher interest rates, prompting market speculation the group could cut output again.

On Sunday the group of oil producers decided to keep the policy unchanged. Its key ministers will next meet on February 01, 2023 for a monitoring committee while a full meeting is scheduled for June 03-04, 2023.

On Friday, G7 nations and Australia agreed a $60 per barrel price cap on Russian seaborne crude oil in a move to deprive President Vladimir Putin of revenue while keeping Russian oil flowing to global markets.

Moscow said it would not sell its oil under the cap and was analyzing how to respond.

Many analysts and OPEC ministers have said the price cap is confusing and probably inefficient as Moscow has been selling most of its oil to countries like China and India, which have refused to condemn the war in Ukraine.

Neither an OPEC meeting on Saturday nor the OPEC Plus meeting on Sunday discussed the Russian price cap.

Russia's Deputy Prime Minister Alexander Novak said on Sunday Russia would rather cut production than supply oil under the price cap and said the cap may affect other producers.

Sources have told Reuters several OPEC Plus members have expressed frustration at the cap saying the anti-market measure could ultimately be used by the West against any producer.

The United States said the measure was not aimed at OPEC.

JP Morgan said on Friday that OPEC Plus could review production in the New Year based on fresh data on Chinese demand trends and consumer compliance with price caps on Russia crude output and tanker flow.

 

Volatility of oil prices will be name of the game in December 2022

The month of December has started and it can be rightly termed the most crucial for the energy market as several events and factors would determine the trend in prices by the end of year 2022 and beyond.

While the Chinese zero-Covid policy and protests against that policy weigh negatively on market sentiment, the OPEC plus meeting on December 04 and the beginning of the European Union embargo on Russian seaborne crude oil imports on the next day are likely to shape the course of the prices. Uncertainty is high, which would stoke further volatility in prices. 

Oil slumped early on Monday to the lowest level in nearly a year – since December 2021, weighed down by risk aversion in commodity markets amid protests in China over the authorities’ strict Covid curbs policy. 

The recent price rout, with Brent plunging by 10% in one week, intensified speculation that OPEC Plus members could consider another production cut when they meet on Sunday, December 4. On the following day, December 5, the EU ban on imports of Russian crude oil and the associated G7-EU price cap begins, with the exact price of the cap yet to be agreed on and announced. 

With so many uncertainties, oil prices are seesawing on every rumor or report. This week and the ones after that will likely see more of the same and prices could swing either way depending on the OPEC Plus meeting, the EU ban and price cap on Russian oil and Russia’s reaction to it, and the developments in China, which, so far, is singlehandedly dragging down oil prices due to fears of weak demand in the world’s top crude oil importer at least in the short term. 

A violent move down in prices began on November 21 after The Wall Street Journal citing OPEC delegates that the members of the group had informally discussed whether there would be a need for more oil on the market in view of the EU embargo on Russian crude oil imports. The report was immediately denied by OPEC’s top producer Saudi Arabia and another influential member of the cartel, the United Arab Emirates (UAE). 

“United Arab Emirates denied that it is engaging in any discussion with other OPEC+ members to change the last agreement, which is valid until the end of 2023,” its Energy Minister Suhail al-Mazrouei said on November 21.

“We remain committed to OPEC Plus aim to balance the oil market and will support any decision to achieve that goal,” the minister added. 

As of November 29, speculation is mounting that OPEC Plus could consider a cut at its December 4 meeting due to gloomier-than-expected oil demand outlook amid Chinese Covid curbs and protests and slowing economies elsewhere. 

Considering that oil prices slumped to the lowest level since December 2021, OPEC Plus could indeed decide to defend an US$80 floor under prices, but it will have a difficult task in predicting how the embargo on Russian crude will impact trade flows and prices. 

The structure of the oil futures market is showing sign of sluggish global oil demand and sufficient supply just ahead of the embargo on Russian oil. Weakening physical demand and plunging spot premiums for Middle Eastern crude could prompt OPEC Plus to announce a fresh cut on Sunday. 

The alliance of OPEC and non-OPEC producers led by Russia regularly denies it’s defending a certain oil price, but it always says that it looks at the market fundamentals.

These days, the physical market is showing signs of weakness and even an oversupply in the short term, considering the contango in both WTI and Brent front-month to second-month futures. 

Iraq, OPEC’s second-largest producer, signaled this weekend that the OPEC+ meeting would focus on the current market conditions and balances.  

Several hours after the OPEC+ meeting, the EU embargo and the price cap on Russian oil enter into force. There are so many uncertainties surrounding the measures that analysts cannot predict anything but further volatility in oil prices. The uncertainties range from the exact price of the cap – with the EU still at odds over this five days before the embargo kicks in – to how many vessels Russia would need to place its oil to willing buyers, where ship-to-ship transfers can occur for Baltic exports bound for Asia, how big the ‘dark fleet’ under the radar could be, and last but not least, whether Putin will go through with his promise to stop supplying oil to anyone joining the price cap. 

“All of these things are so significant to the oil markets that they could whip prices from one direction to the other very significantly,” Michael Haigh, Global Head of Commodities Research & Strategy Societe Generale, told The Wall Street Journal.   

Biden re-evaluating US relationship with Saudis

Reportedly, President Joe Biden is launching a review of the US relationship with Saudi Arabia after OPEC Plus announced last week that it would cut oil production over US objections.

The announcement came a day after powerful Democratic Senator Bob Menendez, chairman of the Senate Foreign Relations Committee, said the United States must immediately freeze all aspects of US cooperation with Saudi Arabia, including arms sales.

White House Press Secretary Karine Jean-Pierre said a review will be forthcoming but gave no timeline for action or information on who would lead the re-evaluation. The United States will be watching the situation closely over the coming weeks and months, she said.

OPEC Plus announced plans for an oil production cut last week after weeks of lobbying against one by US officials. The United States accused Saudi Arabia of kowtowing to Russia, which objects to a Western cap on the price of Russian oil spurred by the Ukraine invasion.

US officials had been quietly trying to persuade its biggest Arab partner to nix the idea of a production cut, but Saudi Arabia's de factor ruler, Crown Prince Mohammed bin Salman, was not swayed.

Bin Salman and Biden had clashed during Biden's visit to Jeddah in July over the death in 2018 of Washington Post journalist Jamal Khashoggi.

US intelligence says the crown prince approved an operation to capture or kill Khashoggi, a Saudi insider-turned-critic, who was murdered and dismembered by Saudi agents inside the kingdom's consulate in Istanbul.

The prince, son of King Salman, 86, has denied ordering the killing but acknowledged it took place under my watch. Biden said in July he told the prince he thought he was responsible.

John Kirby, the White House National Security Spokesperson, said Biden would work with Congress to think through what that relationship ought to look like going forward.

"And I think he's going to be willing to start to have those conversations right away. I don't think this is anything that's going to have to wait or should wait, quite frankly, for much longer," Kirby added.

State Department Spokesperson Ned Price also said on Tuesday the Biden administration would not overlook Iran, a US adversary and a bitter regional rival of Saudi Arabia, in the review. Much of US arms sales to Saudi Arabia have been made with Iran's threat in the region in mind.

"There are security challenges, some of which emanate from Iran. Certainly, we won't take our eye off the threat that Iran poses not only to the region, but in some ways beyond," Price said.