Iran to continue constructive cooperation with OPEC

Iranian Oil Minister, Javad Oji said his country will continue constructive interactions with Organization of Petroleum Exporting Countries (OPEC) and will support the organization’s new Director General, Shana reported.

“As a founding member of OPEC, Iran will definitely continue its constructive interaction with OPEC and would effectively support the new Secretary General as well as the OPEC secretariat,” Oji said at the 31st OPEC and Non-OPEC Ministerial Meeting held via video conference.

Honoring the memory of former OPEC Secretary General Mohammad Sanusi Barkindo and welcoming his replacement Haitham Al Ghais, the minister said, “I received the very sad news of the passing away of His Excellency Mohammad Sanusi Barkindo, Distinguished Secretary General OPEC. On behalf of the Government and people of the Islamic Republic of Iran, I would like to express my heartfelt condolences to Your Excellencies, particularly His Excellency Timipre Sylva, Minister of State for Petroleum Resources, Distinguished Government and Great People of Nigeria and the esteemed Staff of the OPEC Secretariat.”

“Undoubtedly, His Excellency’s round-the-clock efforts as the OPEC Secretary General to promote solidarity and unity among Member Countries, along with his trust in collective wisdom and efforts for creating understanding have always helped the Organization and its Members,” he added.

He also congratulated Haitham Al Ghais for assuming the position of the OPEC Secretary General, saying, “I am confident that your appointment will be a critical step in advancing the Organization, achieving the collective goals of the OPEC and its Members and the fair and forward-looking leadership of the OPEC Secretariat.”

“I am confident that the OPEC’s successes in recent years will continue in the future under the leadership of Al Ghais. I wish him every success in his new position during this challenging time for fossil fuels,” he added.

OPEC likely to boost production to 650,000 bpd

The three giant oil producers, Iraq, Saudi Arabia and United Arab Emirates seem to have bow downed before United States and agreed to increase daily output to meet the shortfall resulting from ban on Russian oil export.   

If this proposal is agreed to by the OPEC Plus ministers, it will come as a relief to the White House, which has been begging OPEC—especially Saudi Arabia—for additional oil output as the United States continues to battle high gasoline prices in the run-up to mid-term elections.

According to media reports, the Joint Ministerial Monitoring Committee (JMMC) of the Organization of the Petroleum Exporting Countries (OPEC) has recommended an increase in production by 648,000 barrels per day (bpd) —higher than what was originally agreed.

The proposed 648,000 bpd output increase would be for July and another 648,000 bpd increase in August, all members of the JMMC were in agreement.

Under the proposal, OPEC+ would bring forward the planned September hike and spread it across July and August, resulting in 648,000 bpd increase in each of those months. There would be no planned hike, then, in September.

Until Thursday, the overarching sentiment from the masses was that OPEC’s JMMC would rubber-stamp the 423,000 bpd output increase that was already baked into the agreement.

But reports began to filter in, led by the Wall Street Journal that OPEC was considering exempting Russia from the agreement. Those reports later morphed into rumors that OPEC might agree to increase production to make up for what would surely be Russia’s lost oil production in the wake of Western sanctions, including the EU’s Russian oil import ban that was agreed to earlier in the week.

The proposal for a 648,000 bpd increase was discussed as being an overall increase for the OPEC+ group, to be divided among its members equally. In reality, there are numerous OPEC+ members that cannot meet their current quotas and are highly unlikely to meet a new, even higher quota.

Such an increase would benefit Saudi Arabia, the UAE, and Iraq—all of which are thought to have excess spare oil production capacity—the ability to increase production

Iran Oil Show 2022 to kick off on May 13

The 26th International Oil, Gas, Refining and Petrochemical Exhibition of Iran (Iran Oil Show 2022) is scheduled to kick off on May 13 at Tehran Permanent International Fairgrounds, Shana reported.

As reported, all Covid-19 related permits have been obtained from the National Headquarters to Combat Coronavirus Pandemic and the four-day exhibit will be held in full compliance with health protocols and standards.

Iran Oil Show is among the most significant oil and gas events in the world in terms of the number of participants and its diversity.

The event covers a variety of oil industry areas, including upstream industries, universities and science centers, start-ups, and science and technology parks, petrochemicals and related industries, gas and related industries, pipes and tubes, valves, refining and distribution and related industries, rotary machines, as well as products exporters, and etc.

 

 

Iran January 2022 oil output rises 21%MoM

Iran’s crude oil production in January 2022 reached 2.503 million barrels per day (bpd), registering a 21% increase as compared to the figure for December 2021, according to OPEC’s latest monthly report. Iran had produced 2.482 million bpd of crude oil in December 2021.

The Iran’s average crude output for the fourth quarter of 2021 stood at 2.480 million bpd indicating a 40,000-bpd increase as compared to the figure for the first quarter of the year, the report indicated.

OPEC put the average Iranian crude output for 2021 at 2.405 million bpd, while the average output in 2020 was 1.988 million bpd.

These statistics show that although with the re-imposition of the US sanctions, Iran's oil production decreased; gradually the country has been able to compensate for part of the output decline.

The country’s heavy crude oil price also increased US$10.91 in January, to register a 14.6% rise as compared to the earlier month.

Iran sold its heavy crude oil at US$85.59 per barrel during the month, under review as compared to December price of US$74.68 per barrel. Based on the OPEC data, the country’s average heavy crude price was US$54.38 in 2021.

In addition to the devastating impacts of the coronavirus pandemic on the global oil industry which resulted in the drastic fall in oil production and prices, the Iranian oil industry was under pressure from the US efforts to isolate the country by re-imposing sanctions in 2021.

Iran has been ramping up its oil production over the past few months following the recovery of the global markets from the negative impacts of the coronavirus pandemic and the developments in Vienna talks.

Back in February 2021, Fitch Solutions Incorporation, a subsidiary of Fitch Ratings, which is one of the three biggest credit rating agencies of United States, saw the Islamic Republic’s crude oil exports double in 2022 compared to 2020.

“The prospects for the Iranian oil sector have brightened significantly following Joe Biden's victory in the US presidential election on November 3, 2020. President Biden has indicated that he will seek to re-enter the US into the Iranian nuclear deal, paving the way for a roll-back of secondary sanctions and recovery of around 2.0 million bpd in oil production,” the report said.

 

OPEC plus likely to stick to planned March output increase

OPEC plus is likely to stick with a planned increase in its oil output target for March 2022 when it meets on Wednesday next week. Several sources from the producer group said, as it sees demand recovering despite downside risks from the pandemic and looming interest rate rises.

While two OPEC plus sources said oil at a seven-year high close to US$90 a barrel might prompt the group to consider further steps, the vast majority of sources said no new decision was expected at the February 02, 2022 online meeting.

One Russian source told Reuters the country was concerned the price rally might revive a boom in US shale production.

"OPEC plus countries should be on high alert with this price level given the bullish forecasts for shale oil production in 2022," the source said.

The source added that high oil prices were also hurting profit margins of Russian refineries.

OPEC plus, which groups the Organization of the Petroleum Exporting Countries (OPEC), Russia and other allies, has raised its output target each month since August by 400,000 barrels per day (bpd) as it unwinds record production cuts made in 2020.

Current plans would see OPEC plus do so again in March.

"We are very likely to go for another 400,000 barrels per day," one of the OPEC+ sources said. "There are no reasons against it."

OPEC plus has resisted pressure from the United States since last year to raise supplies more quickly.

Despite its increased targets, actual output from OPEC plus has not kept pace as some members struggle with capacity constraints, and this has been a factor underpinning prices.

OPEC plus missed its production target by 790,000 bpd in December 2021 as members such as Nigeria and Angola struggled to raise output, the International Energy Agency said.

Several banks and analysts including Morgan Stanley and JP Morgan, expect oil prices to top US$100/barrel later in the year 2022 amid tight OPEC plus spare capacity and strong demand.

Some OPEC plus sources believe that the recent price rally is driven more by geopolitical tensions than fundamentals.

"With Russian-Ukrainian tension one could expect that, but [it is] not a supply issue for sure," one of the sources said about prospects for US$100 oil.

Oil prices driving Russian equities

Oil continues to hover near multi year highs with the recent surprise inventory draw numbers only adding to the bullish posture of the market. Although, the Biden administration has made several attempts to jawbone the price of oil lower, first by appealing to OPEC to increase production and then hinting that it may release some stockpiles from the SPR reserve

Most of the analysts believe that crude and the whole hydrocarbon complex will at very minimum remain steadily bid for the foreseeable future.

• Global demand for oil favors oil rich RSX ETF
• Russian equities are in a tug of war between inflation and commodity spike
• Yield harvesting RSX offers a low risk way to play the trend

Global demand for oil is almost at pre-pandemic levels of 100 million barrel per day and the re-opening of major business travel routes should boost demand further. In Europe, with natural gas prices already at very high levels, any deep freeze conditions this winter could exacerbate the already elevated price levels.

All of this bodes well for Russia which stands as one of the pre-eminent hydrocarbon exporters in the world and whose oil and gas complex has already locked in massive gains on the production due to the 80% rally in crude.

The easiest and most natural way to play this theme is through the RSX ETF which provides a broad exposure to the Russian oil and gas industry and trades more than 3 million shares each day. The stock has responded well to the rising price of oil gaining 15% since the summer. Although, this is a respectable move it is rather muted in nature given the outsized gains in the underlying commodities. 

The reason for the modest gains in Russian equities has more to do with underlying turbulence in the Russian economy which has tempered the buoyant recovery in hydrocarbon demand. Russia continues to suffer from the scourge of COVID registering an average of 1000 deaths per day this month. More importantly the country is facing serious inflation pressures as it continues to import a vast array of goods that are now subject to supply chain constraints from many Asian producers.

The Russian central bank has already raised the benchmark rate to 7.5%, one of the highest amongst the EM - and has threatened to hike another 100bps in December if inflationary pressures do not abate. All of that has created tight credit conditions for the Russian economy and has compressed P/E spreads for equities.

The push and pull between higher commodity prices and elevated inflation has clearly curbed some of the upward momentum in the RSX nevertheless the ETF may be an excellent instrument for a low risk yield stripping play.

At current levels the RSX provides a very respectable 2.75% yield and given the fact that most of the Russian oil majors are seeing 14-18% Free Cash Flow yields at current commodity spot prices chances are good that many of the Russian companies in the ETF will raise their dividend payouts over the course of the next year. Meanwhile the RSX offers listed options on the instrument and investors could sell near or at the money calls on a bi monthly basis to enhance their return. 

As long as the price of oil remains within the $70-$90 range for 2022 the value of RSX is likely to remain stationary at worst and appreciate at best. Investors therefore could harvest dividend yield and option premium in a relatively low risk trade with possibility of double digit annual returns.

 

US accuses OPEC Plus jeopardizing global economic recovery

The White House has said OPEC Plus is risking imperiling the global economic recovery by refusing to speed up oil production increases and warned the United States was prepared to use "all tools" necessary to lower fuel prices.

The move came after Saudi Arabia-led Opec and its allies such as Russia rejected US calls to help tame rising oil prices, insisting they would stick with a plan of only gradually increasing output, even as demand roars back from the depths of the pandemic.

"Opec+ seems unwilling to use the capacity and power it has now at this critical moment of global recovery for countries around the world," said a spokesperson for Biden's National Security Council.

"Our view is that the global recovery should not be imperilled by a mismatch between supply and demand."

Oil prices are close to seven-year highs despite economic activity not yet fully recovering to pre-pandemic levels and higher energy costs stoking concerns about inflation. Brent crude oil prices slipped about 2 per cent after the meeting towards $80 a barrel.

US President Joe Biden has blamed Russian and Saudi oil supply restraint for a surge in US petrol prices, which have risen 60 per cent in the past 12 months.

Jennifer Granholm, the US energy secretary, told the Financial Times last month that a release of oil from the country's strategic stockpiles was among "tools" the Biden administration could deploy to cool crude prices that have more than doubled in the past year.

Saudi Arabia defended its stance on Thursday saying the producer group was acting as a "responsible regulator" by only gradually increasing oil output by 400,000 barrels a day (bpd) each month.

"What we have seen over the past few months again and again and again is that energy markets must be regulated otherwise things will go astray," Prince Abdulaziz bin Salman, Saudi energy minister, said in an extended press conference.

The group sought to present a united front to the US, with energy ministers from Mexico to the UAE lining up to support the decision.

Opec+ said in a statement it wanted to "provide clarity to the market at times when other parts of the energy complex outside the boundaries of oil markets are experiencing extreme volatility and instability".

Abdulaziz repeatedly referenced gas and coal markets, the prices of which have risen faster than oil this year, to justify the group's actions but the explanation failed to satisfy the White House.

Saudi Arabia has long been one of Washington's most important Middle Eastern allies but tensions are increasing with the Biden Administration.

Biden has refused to speak with Crown Prince Mohammed bin Salman, the heir to King Salman and day-to-day ruler of the country. The US released a declassified intelligence report in March that said the Crown Prince authorised the murder of Washington Post journalist Jamal Khashoggi.

Abdulaziz is the half brother of the Crown Prince and is seen as frustrated by the push by western countries to cut their reliance on fossil fuels while also asking the kingdom to raise oil production.

"The relationship between Saudi Arabia and the US is at risk of being strained as the latter is going full-bore to tackle climate change," said Christyan Malek, head of oil and gas research at JPMorgan.

"But Saudi Arabia in this context needs to fund its own energy transition. And it's looking for an oil price and a relationship which is conducive for that."

The White House has also said it is monitoring Russia's actions in natural gas markets, as prices in Europe and Asia have soared fivefold this year. Some lawmakers in Europe and the US have blamed Moscow for exacerbating the gas price surge by restricting supplies to Western Europe.

Bob McNally, head of Rapidan Energy Group and a former adviser to the George W Bush White House, said the decision by Opec+ could prompt a response from consumer countries.

"Given the complete rebuff by Opec+ and President Biden's clear threats to respond, odds of a US if not an International Energy Agency strategic stock release are rising fast along with other retaliatory options," he said.

Under the current plan, Opec+ will add 400,000 bpd every month until the end of 2022, restoring oil supply removed last year after the US cajoled Saudi Arabia and Russia to make record deep cuts to prop up an industry devastated by the pandemic.

OPEC plus decision to ease production dictated by United States

On Thursday, OPEC plus once again succumbed to pressure from the United States to gradually ease its oil output cuts from May. This should not be a surprise for the world because the Biden administration did exactly what Donald Trump had been doing in the past. 

Just to recall, it was Trump’s practice to call OPEC leaders, particularly Saudi Arabia to keep energy affordable.

The group, which has implemented deep cuts since a pandemic-induced oil price collapse in 2020, agreed to ease production curbs by 350,000 barrels per day (bpd) in May, another 350,000 bpd in June and further 400,000 bpd or so in July.

Under Thursday’s deal, cuts implemented by the Organization of the Petroleum Exporting Countries, Russia and their allies, a group known as OPEC plus, would be just above 6.5 million bpd from May, compared with slightly below 7 million bpd in April.

“What we did today is, I think, a very conservative measure,” Saudi Energy Minister Prince Abdulaziz Bin Salman told a news conference after the OPEC plus meeting, adding that output levels could still be adjusted at the next meeting on April 28.

He said Thursday’s decision had not been influenced by any talks with US officials or any other consuming nations.

The Saudi minister also said the kingdom would gradually phase out its additional voluntary cut that have been running at one million bpd, by adding 250,000 bpd to production in May, another 350,000 bpd in June and then 400,000 bpd in July.

“We reaffirmed the importance of international cooperation to ensure affordable and reliable sources of energy for consumers,” Jennifer Granholm, the new energy secretary appointed by US President Joe Biden, said on Twitter after her call with the Saudi energy minister.

News of the call coincided with signs of a changing mood in informal discussions between OPEC plus members. A few days before Thursday’s talks, delegates had said the group would likely keep most existing cuts in place, given uncertainty about the demand outlook amid a new wave of coronavirus lockdowns.

But in the 24 hours before the meeting started, sources said discussions had shifted to the possibility of output increases.

In the past, Trump had used his influence to force Saudi Arabia to adjust policy. When prices spiked, he insisted OPEC raise production. When oil prices collapsed last year, hurting US shale producers, he called on the group to cut output.

Until this week, Biden’s administration had refrained from such an approach, keep a distance from Riyadh and imposing sanctions on some Saudi citizens over the 2018 murder of Jamal Khashoggi.

Even when OPEC plus decided on 4th March to keep output steady, triggering a price rise, the White House had made no direct comment.

China and Russia emerging key players of energy markets

Joe Biden’s presidency will hopefully not interfere with OPEC+ actions taken to rebalance oil markets, Russian Deputy Prime Minister and former Energy Minister Alexander Novak said recently.

“We can see that the new US administration is making statements contradictory to the country’s policy from the last four years,” Novak said, adding, “As far as we can see there will be more discussion of climate topics. This could affect US oil production.”

“We hope that the changes to the policy of the US administration will not have an impact on the joint actions, which, first of all, are designed to play a positive role for the global economy and energy markets,” Novak also said.

The president-elect has prioritized climate action and has threatened a ban on oil and gas drilling on federal land, which caused a vocal reaction from the industry, with the American Petroleum Institute pledging to use “every tool at its disposal” to fight this plan.

Biden has also promised to end fossil fuel and mining subsidies, which would be difficult to do with the current make-up of Congress as well as opposition from within the Democratic Party. Instituting a drilling ban for federal lands will also face challenges from opponents, but, interestingly enough, some in the oil industry are not that worried, the President cannot ban drilling on private lands, and this is where most of US drilling done.

If anything, a Biden presidency should be positive news for OPEC+ on the face of it and with his making climate change a top priority. However, Biden has already declared Russia the biggest threat for the United States and has suggested a rethink of relations with Saudi Arabia, meaning he would be hardly willing to make any moves that would benefit either of the two countries.

China Iran joint drilling

Drilling operations of the first well of the game-changing but highly-controversial Phase 11 of Iran’s supergiant South Pars non-associated natural gas field officially began lately. Significant gas recovery from the enormous resource will commence in the second half of the next Iranian calendar year that begins on 21 March 2021. The long-stalled Phase 11 development supposedly saw the withdrawal of all Chinese involvement in October 2019. In reality, though, China is still intimately involved in its development and is looking to further scale up its activities following the inauguration of Joe Biden as US President on 20th January 202.  Along with completing the crucial Goreh-Jask pipeline oil export route by the end of the current Iranian calendar year (ending on 20 March 2021), building out its value-added petrochemicals production to at least 100 million metric tons per year by 2022, and ramping up production from its hugely oil-rich West Karoun cluster of oil fields to at least one million barrels per day (bpd) within the next two years, optimizing the natural gas production from its South Pars gas field is a top priority for Iran.

With an estimated 14.2 trillion cubic meters (tcm) of gas reserves in place plus 18 billion barrels of gas condensate, South Pars already accounts for around 40 per cent of Iran’s total estimated 33.8 tcm of gas reserves – mostly located in the southern Fars, Bushehr, and Hormozgan regions – and about 80 per cent of its gas production. The 3,700-square kilometer (sq.km) South Pars sector of the 9,700-square km basin shared with Qatar (in the form of the 6,000-square km North Dome) is also critical to Iran’s overall strategy to sustain natural gas production across the country of at least 1 billion cubic meters per day (Bcm/d), with Phase 11’s target production capacity being 57 million cubic meters per day (mcm/d), and to its corollary plans to become a world-leader in the liquefied natural gas (LNG) market. 

Given the size and scope of Phase 11, it became a focal point of U.S. attention in the aftermath of its unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA) in May 2018 and during the active re-imposition of sanctions toward the end of that year. “The pressure that the US put on [French oil giant] Total [which at the time of its withdrawal in the middle of 2018 from Phase 11 held a 50.1 per cent stake in the US$4.8 billion project and had already invested around US$1 billion] was enormous,” a senior Iranian oil and gas industry source told OilPrice.com. “Its ruthless handling of Total was designed by the US to show the EU [European Union] – which was trying to find a way to ignore the new U.S, sanctions – that, regardless of the EU’s efforts to avoid going along with the new US restrictions on Iran, it had better do so, or else,” he added. “On the eve of the signing of the next wave of financing for SP11, the US Treasury Department telephoned senior bankers at the bank that was organizing the money and told them that if the financing went ahead then the U.S. would instigate a full historic investigation of all of the bank’s dealings since 1979 to every country that had been blacklisted by the US, and it told the French government the same thing,” he underlined. “The US Treasury also said that all French companies would not win any major contracts with US companies whilst Total stayed in Iran, but if Total withdrew then the US would make a similar project available to it to compensate,” he said. 

Iran-Russia

Iran has stated its interest in attracting investments from Russian oil companies to help develop its oilfields, Russia’s TASS news agency said, quoting Iranian Oil Minister Bijan Zanganeh. Iran is hoping to not only attract investments into its oil industry, but looking to increase its energy cooperation with Russia to offset the harsh US sanctions that have reduced its oil exports over the last year.

Deputy Prime Minister Alexander Novak met with the Iranian Oil Minister recently. “A broad range of trade and economic cooperation matters is also successfully explored between our countries. Although this year has become a tough challenge for the whole global community, economic relations between Russia and Iran do not lose prior dynamics but become more active and meaningful instead,” Novak said.

The talks come at a time when Iran is hit particularly hard by the effects from the Covid-19 pandemic, on top of the US sanctions that have hampered Iran’s main source of income, oil exports. According to some medical professionals, the country may be quickly approaching a catastrophe, on top of the economic depression it is currently going through. For Iran, the culmination of an economic depression and an unprecedented health crisis has resulted in crime sprees, a rash of suicides, business closures, lower standards of living, substance abuse, and evictions.

All this may make Iran more amenable to energy deals that Russia proposes. China and Iran are essentially the last development firms that remain in Iran. Iran has gotten the short end of the stick when it comes to energy deals with Russia before, most notably when Iran was facing the threat of US sanctions in May 2018. Then, too, Iran was on the back-foot.

How OPEC Sees Oil Market In 2021?

Last week, Organization of Petroleum Exporting Countries (OPEC), in conjunction with some Russia-led oil producers, agreed to increase oil output by 500,000 barrels per day (BPD) in January 2021. The oil markets rallied, because there were some concerns that OPEC could increase production by 2 million BPD.

There was reportedly a lot of disagreement among OPEC members prior to the announced agreement. The United Arab Emirates reportedly pushed hard for a larger production increase, which it argued the global oil market could absorb.

The global oil markets have rallied over the past six weeks, driven primarily by news that vaccines will soon be available to fight the COVID-19 pandemic. The much anticipated end to the pandemic offers some hope of recovery in global oil demand that has plummeted since the start of the pandemic.

OPEC members certainly want to take advantage of this spike in prices, but the reality is that oil demand is probably still a few months away from bouncing back substantially. In fact, given the precarious state of the US economy — and the fact that it will be late winter at the earliest before a substantial portion of the population is vaccinated — US oil demand may not return to normal until the second half of 2021.

That poses a risk that OPEC is putting more oil into an already oversupplied market, with the risk that this will send oil prices down yet again. So what could be OPEC likely strategy?

Analysts can get an idea by looking at OPEC’s Monthly Oil Market Report. The report projects that global economic growth is going to contract by 4.3% in 2020, but 2021 forecast projects global growth of 4.4%.

While OPEC expects final 2020 oil demand to be 9.8 million BPD, lower than 2019, it projects oil demand to bounce back by 6.2 million BPD in 2021. OPEC expects the strongest demand growth in 2021 from India (14%), China (9%), the US (7%), and Europe (7%).

We can look at OPEC’s expectations for oil supply growth in 2021 and see why some members are pushing for a greater production increase. After non-OPEC oil supply contracted by 2.5 million BPD in 2020, OPEC projects that non-OPEC supply will expand by less than one million BPD in 2021. OPEC had cut production by nearly 10 million BPD as the pandemic grew, and producers are anxious to recapture some of those production cuts.

If OPEC forecast is correct, then the world could face an oil supply shortage in 2021. Therefore, some of the members are asking for a greater production increase.

 

Falling oil prices, biggest threat to US shale producers

The week ended on 13th March 2020 can be termed one of horrific weeks for crude oil producers and traders as prices went down about 50 percent since the start of the year. 

Oil rebounded a bit on Friday following movement in the U.S. Congress to pass a coronavirus economic relief bill. Nevertheless, the near-term looks dire for oil markets, with supply rising quickly as demand continues to collapse. The added threat is likely hike in output by OPEC and Russia.  

Analysts anticipate oil prices to remain at current depressed levels for months amid a price war and the fight for market share. They fear WTI Crude prices to hover around US$30/barrel in the near term. On Friday, WTI traded at US$33, but down by a massive 25 percent on the week for what is shaping up to be the worst week for oil prices since the financial crisis in 2008. Brent prices are also likely to remain range bond in the near term.

After the collapse of the OPEC+ production cut deal, major banks slashed their oil price forecasts, expecting an enormous oversupply in the market as Saudi Arabia, the United Arab Emirates (UAE), and Russia are turning on the taps and looking out for their own interests instead of trying to fix the prices.

Goldman Sachs has warned oil price may plunge to US$20, Standard Chartered says WTI Crude will average just US$32 a barrel in 2020, and ING slashed its Q2 Brent Crude forecast to $33, from US$56, to name a few.

Saudi Arabia has promised to flood the oil market with an extra 2.6 million bpd of oil from April, while its fellow OPEC producer and ally, the United Arab Emirates (UAE), pledged an additional one million bpd in supply. This will result in a total increase of 3.6 million bpd in global oil supply from OPEC’s heavyweights at a time of depressed oil demand due to the coronavirus outbreak. Russia indicates to raise production up to 500,000 bpd.   

According to the Wall Street Journal, Russia believes that low oil prices can damage U.S. shale producers. Outwardly, Moscow does not link its motivations to an intention to harm U.S. oil companies, but Russia had grown wary of the OPEC+ cuts, which contributed to a 4 million bpd increase in U.S. shale over the past three years. Western analysts believe that U.S. sanctions on Nord Stream 2 and Rosneft stoked ire in Moscow. 

 A study of 30 shale drillers accounting for 38 percent of total U.S. oil production finds that roughly 50 percent of their output is hedged at an average price of US$56. If WTI averages US$40 this year, the hedges would save the companies a combined US$10.5 billion or US$17 billion if WTI averages US$25. “There is definitely a significant amount of default risk,” said Michael Anderson, a strategist at Citi.

OPEC becoming subservient to US Shale oil producers

I will prefer to say at the outset that Saudi Arabia has become subservient to the US administration. Zionists, god-fathering Israel, have succeeded in creating the perception ‘Iran is a bigger threat.’ This has helped the US in soliciting arms orders worth US$350 billion.

Now, OPEC-led by Saudi Arabia, is being convinced to allow US Shale oil producers to increase their output under ‘mutual coexistence’. Both the Saudi decisions indicate that its foreign and economic policies have become subservient to the US.

The history of the relationship between OPEC and the US shale oil industry has evolved a great deal since the cartel discovered it (OPEC) has a monstrous rival eating up its market for around five years.

To convince Saudi Arabia to give more space, US bankers providing funds to Shale oil producers came to Vienna and key OPEC members are getting readying visit Texas in a bid to understand whether the two industries can coexist or are poised to embark on another major fight in the near future.

The complete surrender by the Saudi Arabia is evident from the statement of Khalid al-Falih, its Oil Minister, who said, "We have to coexist." One can recall that he pushed through OPEC production cuts in December, reversing Riyadh's previous strategy of pumping as much oil as possible and try to push US Shale oil producers out of business, by keeping oil prices low.

OPEC has already decided to extend a helping hand to US Shale producers, but keeps seeking supplies at a level to hold prices below $60 per barrel.

Some analysts believe that now OPEC realizes supply cuts and higher prices only make it easier for the shale industry to earn higher profit after it found ways of slashing costs.

Iran that has already consented to support Saudi Arabia justifies its decision. "For all OPEC members $55 (per barrel) and a maximum of $60 is the goal at this stage," said Bijan Zanganeh, Iran's oil minister. "This price level is not high enough to encourage too much shale? It seems it is good for both."

Some OPEC members seem keen to show they have shed any prior naivete about shale, making it a key topic during Thursday's meeting after barely mentioning it before. Shale's limitations, including rising service costs, also were discussed.

"We had a discussion on (shale) and how much that has an impact," said Ecuador Oil Minister Carlos Pérez. He expressed helplessness, "But we have no control over what the US does and it's up to them to decide to continue or not?"

"In terms of the threat, we still don't know how much (U.S. shale) will be producing in the near future," Nelson Martinez, Venezuela's oil minister said after the talk.

OPEC meets again in November to reconsider output policy. While most in the group now appear to believe that shale has to be accommodated, there are still those in OPEC who think another fight is around the corner.

"If we get to a point where we feel frustrated by a deliberate action of shale producers to just sabotage the market, OPEC will sit down again and look at what process it is we need to do," said Nigerian Oil Minister Emmanuel Kachikwu.

When will OPEC come out of illusion created by the western media?

Since the Saudi-led OPEC agreed to curtail production, I have been saying that it is an attempt to gulp their market share. Western media, mostly own by anti-Muslim groups, is still trying to persuade OPEC to further cut output to facilitate the US to attain the status of largest oil producing country.

Till recently, there was embargo on export of oil from the US as the country was oil deficient. Now the US has attained the club of oil exporting countries and its exports are on the rise. Shipment data also shows more oil being moved through the oceans than when cuts were put in place.

According to Reuters, oil prices tumbled more than 2 percent on this Friday, posting the biggest weekly decline in more than a month. The fall was prompted by rising US production and stockpiles. This completely frustrates attempts by OPEC to reduce the global crude glut.

During the week ended on Friday, Brent fell 7 percent, while WTI came down 6.7 percent. It was the largest percentage drop for both benchmarks since the week of March 10, when rising concern about the supply glut undermined big bets on an oil rally.

Many analysts suggest that OPEC should continue reduction in production for another six months. On Friday an OPEC and non-OPEC member technical committee recommended extending cuts of almost 1.8 million barrels per day (bpd) to be formally approved at the upcoming 25th May meeting.

While it is not clear that Russia would support an extension, it is also feared that OPEC-led by Saudi Arabia may leave the cartel vulnerable. The logic is simple, why should it support the US oil producers?

Reportedly, US drillers added oil rigs for a 14th week in a row, extending an 11-month recovery that is expected to boost US shale production in May in the biggest monthly increase in more than two years. Drillers added five oil rigs in the week to ending 21st April, taking the total count up to 688, the most since April 2015. That is more than double the same week a year ago when there were only 343 active oil rigs.

Analysts projected that US energy firms would boost spending on drilling and pump more oil and natural gas from shale fields in coming years with energy prices expected to climb. After taking a hit last year when dozens of US shale producers filed for bankruptcy, private equity funds raised $19.8 billion for energy ventures in the first quarter - nearly three times the total as compared to the same period last year.

A US financial services firm said in a note this week that its capital expenditure tracking showed 57 exploration and production (E&P) companies planned to increase spending by an average of 50 percent in 2017 over 2016. The expected spending increase in 2017 followed an estimated 48 percent decline in 2016 and a 34 percent decline in 2015.

I am forced to arrive at a conclusion that those at the helm of affairs of OPEC are not sincere with their own countries but facilitating the US to attain the status of largest oil producing and exporting country, please correct me if I am wrong.

West getting ready again to create rift between Saudi Arab and Iran

Major oil producers are scheduled to meet in Kuwait to deliberate on the outcome of their collective cut in production. It is expected that they won’t make any decisions until May, but are likely discuss the slow pace of market adjustment.

A survey of 13 oil market analysts by Bloomberg concludes that OPEC has little choice but to continue their production cuts. “They’ll probably think they need to grin and bear it longer. The glue that bound them together to begin with, which was higher prices, is the glue that will continue to bind them together.”

A point to be dealt with by all is ‘Saudi Arabia might demand Iran cutback if OPEC is to extend deal’. Speculation about whether or not OPEC will extend its production cut deal for another six months will be one of the most significant variables affecting oil prices in the short run. Western media has once again started spreading disinformation, “Saudi Arabia might only agree to an extension if Iran agrees to cut its production, something that it did not have to do as part of the initial deal”.

 The western media is prompting, “Iran agreed to a cap on production slightly higher than its October baseline for the January to June period, but Saudi Arabia is growing tired of taking on the bulk of the sacrifice for the market adjustment and might stipulate that other countries make a larger sacrifice if the deal is to be extended through the end of the year”.  

The western pinch can be understood by a Reuters report quoting a Saudi energy ministry official that crude exports to the United States in March would fall by around 300,000 barrels per day (bpd) from February and hold at those levels for the next few months.

The official said the expected drop, in line with OPEC's agreement, could help draw down inventories in the United States that stood at a record 533 million barrels last week. It is also believed that Saudi exports to other regions, notably Asia, will not face any cut, rather these may increase. Therefore, the western media is once again making hue and cry that unless OPEC extends the curbs beyond June or makes bigger cuts, oil prices are not likely to improve.

The question remains whether OPEC, whose committee monitoring the cuts will meet over the weekend in Kuwait, will extend the deal? In Russia, private oil producers are ditching their skepticism and lining up behind an extension of output cuts after previous oil price increases compensated for lost income.

In the United States, shale drilling has pushed up oil production by more than 8 percent since mid-2016 to just above 9.1 million bpd, though producers have left a record number of wells unfinished in Permian, the largest oilfield in the country, a sign that output may not rise as swiftly as drilling activity would indicate.

While, I am not an expert to suggest any thing to OPEC, I have no option to tell them that if no cap is put on oil output in the United States, they (OPEC) have no obligation to cut output.  On the contrary they should start dumping their oil in the United States, rather than giving it a chance to increase indigenous production. OPEC must once again let the price go down below US$25 per barrel.  This will render the producers from the United States uneconomical. OPEC should also stop considering Iran its enemy as it (Iran) can’t increase output in near term.

US the biggest beneficiary of output cut by Saudi-led OPEC

I posted a blog ‘US producers gulping Saudi share’ on 4th February 2017. In this blog I had expressed my apprehension that Saudi Arabia was most likely lose its market share by cutting down output. I also warned that with the improvement in oil prices, US producers would be prompt in increasing their production to gulp Saudi share.

In the recent past various reports have been released that supports my point. The reports indicate that the US production has risen to around 9 million barrels/day. These reports also confirm that the compliance by OPEC members is as high as 95 percent; Russia has not made the corresponding cut in its output.

According to EIA data, US crude inventories hit record highs last week, after eight straight weeks of build ups. This was because of increase in number of active rigs as production topped 9 million barrels per day for a second week in a row, the most since April 2016. Increase in US crude stockpiles undermine efforts by Saudi-led OPEC to contain global oil glut.

I am obliged to share a report published by Reuters ‘U.S. drillers add oil rigs for seventh week in a row: Baker Hughes’ indicating that with the improvement in crude oil price the US drillers have added a total of 293 oil rigs in 36 of the past 40 weeks. This is the biggest addition since a global oil glut crushed the market in mid 2014. The US drillers added seven oil rigs during the week ended 3rd March 2017, taking the total count up to 609, the most since October 2015. During the same week a year ago, there were 392 active oil rigs only.

According to Baker Hughes, oil rig count plunged from a record 1,609 in October 2014 to a six-year low of 316 in May 2016. This fall has been attributed to the collapse of US crude oil prices to near US$26 in February 2016, from over US$107 a barrel in June 2014.

Yet another sign of warning is a report by the US financial services firm, Cowen & Co that said its capital expenditure tracking showed 52 exploration and production (E&P) companies planned to increase spending by an average of 50 percent in 2017 over 2016.

One of the likely OPEC decisions could be to declare that the agreement reached last year is no longer binding for its members. Increasing output may not pose any problem for OPEC members but could certainly put US producers in trouble. Only price could determine who can withstand the completion.   

Is EIA reporting correct data about US oil stockpiles?

Ever since the talk about global oil glut has got louder, I have been trying real hard to find out the factors responsible for the prevailing oversupply. The recent stories published and aired suggest that OPEC, led by Saudi Arabia, is responsible for the steep fall in prices. The price per barrel has plunged to US$35 from its peak of US$147 and currently hovers around US$50. A question came to my mind, is Saudi Arabia the only culprit?

Having spent weeks on finding a plausible reason, I reached a very disturbing point. My conclusion is that the stories being published and aired by western media are based on a few premises, which are incorrect and misleading. The biggest factor that moves oil price is weekly US stockpile data released by the US Energy Information Administration (EIA). In the recent weeks, it has reported sudden rise and fall in US stockpiles, which resulted in high volatility in crude prices. Most of these spikes were reported at a time when the world was following OPEC-led effort to contain glut.

Today, I read shocking news that millions of barrels of oil produced in US remain unaccounted for. This raises a question, is EIA reporting correct data about US oil stockpiles? Ideally one should trust that EIA is not providing misleading information. However, keeping the track record of US intelligence agencies in mind; one has a reason to question the sanctity of the data disseminated by EIA.

The data released by EIA about crude oil inventories influences its price. If the increase in crude inventories is more than expected, it implies weaker demand and is bearish for crude prices. The same can be said if a decline in inventories is less than expected. If the increase in crude is less than expected, it implies greater demand and is bullish for crude prices. The same can be said if a decline in inventories is more than expected.

The reason for doubting the sanctity of data disseminated by EIA is little disclosure about shale oil production. The number of operating rigs reported by some service provider is still less than 500, as against an installed number of more than 1900 touched in 2014. This suggests that around one-fourth of installed rigs are operating for almost three years. What has the fate been of remaining three-fourth? How many of them have filed bankruptcy under Chapter 11? If no such report has been made public, one has all the reasons to doubt the authenticity of EIA data.

Morale of the story, EIA is diverting the attention of the world from US crude production to Saudi Arabia, Russia, Iran and Iraq to hold them responsible for the glut. One should also keep in mind that US has also been the biggest beneficiary of low crude oil prices, being the biggest consumer of energy.