One of the biggest conundrums of the OPEC / NOPEC production cut from a ClipperData perspective is that no sooner does a producer appear to be showing compliance via lower exports, lo and behold, volumes rebound.
Some producers have been fairly consistent in their discipline, barring a few blips (bravo, Saudi), while others stand on the sidelines, looking in the other direction (here’s looking at you, Iraq).
But the overarching theme is that a combination of reckless abandon at the end of last year (in terms of higher exports) and the lack of a unified effort to cut crude hitting the global market this year has meant OPEC still remains a country mile away from achieving its goal of lowering global inventories. Hark, a couple of insights on the matter:
Last month we highlighted how UAE was finally exhibiting signs of compliance. ADNOC gave a heads-up earlier in the year that scheduled maintenance would be undertaken for its Murban grade in March, and for Das in April, reducing production and exports of both.
True to its word, we saw Murban exports drop in March to the lowest level since at least 2012, while Das export loadings in April dropped to an 8-month low. There’s the rub, however. Exports of Murban rebounded in April, and are even higher in May thus far. As for Das, it too is rebounding after ebbing last month:
https://i1.wp.com/blog.clipperdata.com/hs-fs/hubfs/Blog_images/Das%20and%20Murban%20May%202017.jpg?resize=625%2C435 625w, http://blog.clipperdata.com/hs-fs/hubfs/Blog_images/Das%20and%20Murban%20May%202017.jpg?t=1495202741750&width=938&height=653&name=Das%20and%20Murban%20May%202017.jpg 938w, http://blog.clipperdata.com/hs-fs/hubfs/Blog_images/Das%20and%20Murban%20May%202017.jpg?t=1495202741750&width=1250&height=870&name=Das%20and%20Murban%20May%202017.jpg 1250w, http://blog.clipperdata.com/hs-fs/hubfs/Blog_images/Das%20and%20Murban%20May%202017.jpg?t=1495202741750&width=1563&height=1088&name=Das%20and%20Murban%20May%202017.jpg 1563w, http://blog.clipperdata.com/hs-fs/hubfs/Blog_images/Das%20and%20Murban%20May%202017.jpg?t=1495202741750&width=1875&height=1305&name=Das%20and%20Murban%20May%202017.jpg 1875w" alt="Das and Murban May 2017.jpg" width="625" height="435">
As OPEC put the pedal to the metal at the end of last year, pushing out as much crude onto the global market as it could before th
As OPEC put the pedal to the metal at the end of last year, pushing out as much crude onto the global market as it could before the production cut deadline, flows of OPEC crude into the U.S. in January reached their highest level since the summer of 2013 (when domestic production was only 7.5 million barrels per day!!).
Despite expectations for lower flows in the months following, we have seen OPEC exports to the U.S. averaging nearly 3.4mn bpd for February, March and April – which is 9 percent above year-ago levels, and up 28 percent versus 2015. Imports so far in May are holding up, currently at 3.4mn bpd, just a smidge below year-ago levels.
But with the latest OPEC meeting fast approaching, Saudi Arabia cut its exports last month to the lowest level since late 2015. This means less crude will be arriving in the U.S. from the OPEC kingpin into June.
https://i1.wp.com/blog.clipperdata.com/hs-fs/hubfs/Blog_images/OPEC%20to%20US%20May%202017%20ClipperData.jpg?resize=613%2C458 613w, http://blog.clipperdata.com/hs-fs/hubfs/Blog_images/OPEC%20to%20US%20May%202017%20ClipperData.jpg?t=1495202741750&width=920&height=687&name=OPEC%20to%20US%20May%202017%20ClipperData.jpg 920w, http://blog.clipperdata.com/hs-fs/hubfs/Blog_images/OPEC%20to%20US%20May%202017%20ClipperData.jpg?t=1495202741750&width=1226&height=916&name=OPEC%20to%20US%20May%202017%20ClipperData.jpg 1226w, http://blog.clipperdata.com/hs-fs/hubfs/Blog_images/OPEC%20to%20US%20May%202017%20ClipperData.jpg?t=1495202741750&width=1533&height=1145&name=OPEC%20to%20US%20May%202017%20ClipperData.jpg 1533w, http://blog.clipperdata.com/hs-fs/hubfs/Blog_images/OPEC%20to%20US%20May%202017%20ClipperData.jpg?t=1495202741750&width=1839&height=1374&name=OPEC%20to%20US%20May%202017%20ClipperData.jpg 1839w" alt="OPEC to US May 2017 ClipperData.jpg" width="613" height="458">
Finally, Libya and Nigeria are another layer to the onion of OPEC production cut complexity. Libyan production has been estimated above 800,000 bpd in recent weeks, although it is currently experiencing supply hiccups. Given low domestic consumption, this rise in output is working its way into higher exports fairly swiftly, up to 550,000 bpd this month.
As for Nigeria, exports this month are at their quickest pace so far this year. Exports were already strong, but are further being bolstered by the first loading of Forcados at its SBM since November, as the Trans Forcados export pipeline gets up and running again: over a million barrels were loaded there on Wednesday.
https://i2.wp.com/blog.clipperdata.com/hs-fs/hubfs/Blog_images/Nigeria%20Libya%20exports%20May%202017.jpg?resize=601%2C463 601w, http://blog.clipperdata.com/hs-fs/hubfs/Blog_images/Nigeria%20Libya%20exports%20May%202017.jpg?t=1495202741750&width=902&height=695&name=Nigeria%20Libya%20exports%20May%202017.jpg 902w, http://blog.clipperdata.com/hs-fs/hubfs/Blog_images/Nigeria%20Libya%20exports%20May%202017.jpg?t=1495202741750&width=1202&height=926&name=Nigeria%20Libya%20exports%20May%202017.jpg 1202w, http://blog.clipperdata.com/hs-fs/hubfs/Blog_images/Nigeria%20Libya%20exports%20May%202017.jpg?t=1495202741750&width=1503&height=1158&name=Nigeria%20Libya%20exports%20May%202017.jpg 1503w, http://blog.clipperdata.com/hs-fs/hubfs/Blog_images/Nigeria%20Libya%20exports%20May%202017.jpg?t=1495202741750&width=1803&height=1389&name=Nigeria%20Libya%20exports%20May%202017.jpg 1803w" alt="Nigeria Libya exports May 2017.jpg" width="601" height="463">
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Anthony Rizzo Players Can't Sit On Bench According to a report from the Chicago Sun-Times, the world-famous Anthony Rizzo Phrase "Zombie Rizzo" has been told to never be used again. Of course, this is not the first time that the Zombified Chicago Cubs' first baseman has made headlines this year. A year ago, "Rosebud" was the catchphrase that he coined for himself. Also, there is Anthony Rizzo Shirts that come in his name. Now that the Cubs are World Series Champions, Anthony Rizzo is on his way to superstardom. He is leading the World Series in several categories, including hits, runs, home runs, RBI's, OBP, and SLG. Also, he's on track for a staggering year in hits, RBI's, and total bases, all while being second in home runs.
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It was shaping up to yet another dull OPEC+ meeting. Cut and dry. Copy and paste. Rubber-stamping yet another monthly increase in production quotas by 432,000 b/d. Month after month of resisting pressure from the largest economies in the world to accelerate supply easing had inured markets to expectations of swift action by OPEC and its wider brethren in OPEC+.
And then, just two days before the meeting, chatter began that suggested something big was brewing. Whispers that Russia could be suspended made the rounds, an about-face for a group that has steadfastly avoided reference to the war in Ukraine, calling it a matter of politics not markets. If Russia was indeed removed from the production quotas, that would allow other OPEC+ producers to fill in the gap in volumes constrained internationally due to sanctions.
That didn’t happen. In fact, OPEC+ Joint Technical Committee commented that suspension of Russia’s quota was not discussed at all and not on the table. Instead, the JTC reduced its global oil demand forecast for 2022 by 200,000 b/d, expecting global oil demand to grow by 3.4 mmb/d this year instead with the downside being volatility linked to ‘geopolitical situations and Covid developments.’ Ordinarily, that would be a sign for OPEC+ to hold to its usual supply easing schedule. After all, the group has been claiming that oil markets have ‘been in balance’ for much of the first five months of 2022. Instead, the group surprised traders by announcing an increase in its monthly oil supply hike for July and August, adding 648,000 b/d each month for a 50% rise from the previous baseline.
The increase will be divided proportionally across OPEC+, as has been since the landmark supply deal in spring 2020. Crucially this includes Russia, where the new quota will be a paper one, since Western sanctions means that any additional Russian crude is unlikely to make it to the market. And that too goes for other members that haven’t even met their previous lower quotas, including Iraq, Angola and Nigeria. The oil ministers know this and the market knows this. Which is why the surprise announcement didn’t budge crude prices by very much at all.
In fact, there are only two countries within OPEC+ that have enough spare capacity to be ramped up quickly. The United Arab Emirates, which was responsible for recent turmoil within the group by arguing for higher quotas should be happy. But it will be a measure of backtracking for the only other country in that position, Saudi Arabia. After publicly stating that it had ‘done all it can for the oil market’ and blaming a lack of refining capacity for high fuel prices, the Kingdom’s change of heart seems to be linked to some external pressure. But it could seemingly resist no more. But that spotlight on the UAE and Saudi Arabia will allow both to wrench some market share, as both countries have been long preparing to increase their production. Abu Dhabi recently made three sizable onshore oil discoveries at Bu Hasa, Onshore Block 3 and the Al Dhafra Petroleum Concession, that adds some 650 million barrels to its reserves, which would help lift the ceiling for oil production from 4 to 5 mmb/d by 2030. Meanwhile, Saudi Aramco is expected to contract over 30 offshore rigs in 2022 alone, targeting the Marjan and Zuluf fields to increase production from 12 to 13 mmb/d by 2027.
The UAE wants to ramp up, certainly. But does Saudi Arabia too? As the dominant power of OPEC, what Saudi Arabia wants it usually gets. The signals all along were that the Kingdom wanted to remain prudent. It is not that it cannot, there is about a million barrels per day of extra production capacity that Saudi Arabia can open up immediately but that it does not want to. Bringing those extra volume on means that spare capacity drops down to critical levels, eliminating options if extra crises emerge. One is already starting up again in Libya, where internal political discord for years has led to an on-off, stop-start rhythm in Libyan crude. If Saudi Arabia uses up all its spare capacity, oil prices could jump even higher if new emergencies emerge with no avenue to tackle them. That the Saudis have given in (slightly) must mean that political pressure is heating up. That the announcement was made at the OPEC+ meeting and not a summit between US and Saudi leaders must mean that a façade of independence must be maintained around the crucial decisions to raise supply quotas.
But that increase is not going to be enough, especially with Russia’s absence. Markets largely shrugged off the announcement, keeping Brent crude at US$120/b levels. Consumption is booming, as the world rushes to enjoy its first summer with a high degree of freedom since Covid-19 hit. Which is why global leaders are looking at other ways to tackle high energy prices and mitigate soaring inflation. In Germany, low-priced monthly public transport are intended to wean drivers off cars. In the UK, a windfall tax on energy companies should yield US$6 billion to be used for insulating consumers. And in the US, Joe Biden has been busy.
With the Permian Basin focusing on fiscal prudence instead of wanton drilling, US shale output has not responded to lucrative oil prices that way it used to. American rig counts are only inching up, with some shale basins even losing rigs. So the White House is trying more creative ways. Though the suggestion of an ‘oil consumer cartel’ as an analogue to OPEC by Italian Prime Minister Mario Draghi is likely dead on arrival, the US is looking to unlock supply and tame fuel prices through other ways. Regular releases from the US Strategic Petroleum Reserve has so far done little to bring prices down, but easing sanctions on Venezuelan crude that could be exported to the US and Europe, as well as working with the refining industry to restart recently idled refineries could. Inflation levels above 8% and gasoline prices at all-time highs could lead to a bloody outcome in this year’s midterm elections, and Joe Biden knows that.
But oil (and natural gas) supply/demand dynamics cannot truly start returning to normal as long as the war in Ukraine rages on. And the far-ranging sanctions impacting Russian energy exports will take even longer to be lifted depending on how the war goes. Yes, some Russian crude is making it to the market. China, for example, has been quietly refilling its petroleum reserves with Russian crude (at a discount, of course). India continues to buy from Moscow, as are smaller nations like Sri Lanka where an economic crisis limits options. Selling the crude is one thing, transporting it is another. With most international insurers blacklisting Russian shippers, Russian oil producers can still turn to local insurance and tankers from the once-derided state tanker firm Sovcomflot PJSC to deliver crude to the few customers they still have.
A 50% hike in OPEC’s monthly supply easing targets might seem like a lot. But it isn’t enough. Especially since actual production will fall short of that quota. The entire OPEC system, and the illusion of control it provides has broken down. Russian oil is still trickling out to global buyers but even if it returned in full, there is still not enough refining capacity to absorb those volumes. Doctors speak of long Covid symptoms in patients, and the world energy complex is experiencing long Covid, now with a touch with geopolitical germs as well. It’ll take a long time to recover, so brace yourselves.
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