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.

United States and South Korea in talks to release frozen Iranian assets

Officials from the United States and South Korea are holding talks over unfreezing Iranian funds held in South Korean banks, according to a South Korean daily.

The talks are focused on releasing the US$7 billion Iranian funds that have long been blocked in South Korean banks due to US sanctions on Iran. The funds are oil revenues dating back to the period prior to the re-imposition of US sanctions on Iran in May 2018.

Citing diplomatic and government sources, The Korea Economic Daily said, “Korean and US government officials are involved in working-level discussions under Washington’s leadership to unfreeze the Iranian funds.”

The newspaper said the funds, if released, would only be used for public and humanitarian purposes such as UN dues and COVID-19 vaccines.

“If all goes to plan, we expect our strained relationship with Iran to improve significantly,” said a Seoul government official.

If talks turn out to be successful, the frozen money will be allowed to be transferred to Iranian bank branches in neighboring Middle Eastern countries, not directly to Iran, to monitor the flow and use of the funds, sources said.

The Korean newspaper also pointed to media speculation over the concessions that Iran is expected to make in exchange for getting its money unfrozen. It said that media reports alleged that Iran would release US prisoners and limit uranium enrichment levels to 60% in return. These speculations have so far not been confirmed by officials.

The frozen Iranian funds have been the biggest obstacle to improvement in Tehran-Seoul relations. They have also been a source of tensions between the two countries.

South Korea seems to be willing to improve its relations with Iran by releasing its funds. “Analysts said if the US$7 billion Iranian funds are released, it would significantly improve Seoul’s relations with Tehran, an energy and military power in the Middle East,” the Korean newspaper wrote.

“There is nothing South Korea can gain from becoming an enemy of Iran,” said Sung Il-kwang, a Korea University professor. “Korea will benefit from gaining access to Iran’s huge market.”

 

QatarEnergy to sign long term LNG supply deal with Bangladesh

QatarEnergy will sign a long-term liquefied natural gas (LNG) supply deal with Bangladesh's state-owned gas company Petrobangla on Thursday, the second Asian sales deal to be sealed for Qatar's North Field expansion project.

The 15-year agreement is for the supply of 2 million tons annually, Petrobangla's Chairman Zanendra Nath Sarker told Reuters.

Supplies are set to start in January 2026, he said.

The agreement will be one of many to come this year as state-owned QatarEnergy secures sales for its mega expansion of North Field, a source with direct knowledge of the new contract agreement, who did not wish to be identified, said.

Qatar is the world's top LNG exporter and competition for LNG has ramped up since the start of the Ukraine war, with Europe in particular needing vast amounts to help replace Russian pipeline gas that used to make up almost 40% of the continent's imports.

But Asia, with an appetite for long-term sales and purchase agreements, has been ahead so far in securing gas from Qatar's massive production expansion project.

This will be Bangladesh's second long-term deal with Qatar as it desperately looks for long-term LNG deals at a cheaper rate after prices spiked following the Ukraine war last year.

The contract will be QatarEnergy's second to Asia since it started selling the gas expected to come on stream from the North Field expansion project.

The two-phase expansion plan will raise Qatar's liquefaction capacity to 126 million tons per year by 2027 from 77 million.

Qatar's first Asian deal, with Sinopec, the longest to be signed at 27 years for the supply of 4 million tons a year, was followed by the state-owned Chinese company taking a 5% stake in the equivalent of one North Field East LNG train.

QatarEnergy's sales and purchase agreements to supply Germany with around 2 million tons of LNG annually through a partnership with ConocoPhillips cover at least a 15-year period.

Bangladesh has a 10-year LNG import deal with Oman Trading International. That LNG is priced at 11.9% of the three-month average price of Brent crude oil plus a constant price of 40 cents per million British thermal units (mmBtu).

Under its first 15-year deal with Qatar, Bangladesh pays 12.65% of the three-month average price of Brent oil plus a constant of 50 cents per mmBtu.

The North Field expansion project will help guarantee long-term supplies of gas globally. North Field is part of the world's biggest gas field that Qatar shares with Iran, which calls its share South Pars.

QatarEnergy chief Saad al-Kaabi said last week there was big demand for LNG and that he expects by the end of the year to have signed supply deals for all the gas expected to come on stream from the North Field expansion.

 

China to invest in Suez Canal Economic Zone

Chinese companies have pledged to invest over US$3 billion in new Suez-based projects.

Egypt's Suez Canal Economic Zone (SCZone) secured the investments from Chinese companies active in chemical, textile and apparel, power, pipes, and iron and steel industries. The investment agreements and commitments were secured during the visit by SCZone Chairman, Walid Gamal El-Din.

Focus of the deals appears to be the Suez Economic and Trade Cooperation Zone (SETC), an industrial estate near the city of Suez, jointly established by the governments of China and Egypt, for the purposes of inviting Chinese companies to set up industries, as part of the Belt and Road project.

The SETC was built by the Tianjin Economic-Technological Development Area (TEDA). The TEDA Suez zone was created in 2008 and extended in 2016 during a visit by Chinese President Xi Jinping to Egypt.

Last week, the SCZone delegation held discussions with Xinxing Ductile Iron Pipes Co, regarding a proposed US$2 billion ductile cast iron pipe manufacturing plant in the Sokhna Industrial Zone, Zawya said.

“The first phase of the project will have an annual production capacity of 250,000 tons of ductile iron pipes, which is expected to increase to 500,000 tons per year in the second phase,” it said.

Shandong Tianyi Company planned to establish bromine and caustic soda production plants in TEDA Suez, with a total investment of $310 million.

“The bromine production plant, valued at US$110 million, will cover an area of 270,000 square meters and have an annual production capacity of 140,000 tons,” it said.

Several other projects in textiles, power generation, apparel and fashion and other industries, worth tens of millions of dollars, to be located in Suez, Sokhna and Abu Khalifa were also announced.

While in China, Gamal El-Dien also met with officials from the China-Africa Development Fund, to discuss investments in the pharmaceutical, automotive, and green fuel industries. His counterparts expressed readiness to finance Chinese investment projects in SCZone, including those related to green hydrogen.

 

Fuel prices likely to fall globally

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

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

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

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

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

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

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

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

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

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

 

OPEC to welcome Iran’s return to oil market

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

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

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

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

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

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

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

Turkey: Erdogan wins another term as President

Chairman of Turkey's Supreme Election Council (YSK) announced that the incumbent President Recep Tayyip Erdogan has been re-elected as the country's leader.

Yener said that Erdogan won Turkey's presidency over opposition challenger Kemal Kilicdaroglu in the second-round runoff vote.

He pointed out that Erdogan won the race with 52.14%, while Kilicdaroglu got 47.86% of the votes after counting 99.43% of the votes.

In a speech in Istanbul late Sunday, President Erdogan said Turkey’s 85 million-strong citizens are the winners in the national elections that concluded today.

More than 64.1 million people were registered to vote, including over 1.92 million who earlier cast their ballots at overseas polling stations.

Nearly 192,000 ballot boxes were set up for voters across Turkey.

On May 14, no candidate won the required 50% in the first round, triggering Sunday’s runoff, although Erdogan took the lead with 49.52%.​​​​​​

On that day, Erdogan’s People’s Alliance also won a majority in parliament.