WEEKLY ENERGY RECAP: OPEC+ picks jaw jaw not war war

An oil pump jack pumps oil in a field near Calgary, Alberta, Canada on July 21, 2014. (REUTERS)
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Updated 18 April 2020

WEEKLY ENERGY RECAP: OPEC+ picks jaw jaw not war war

  • Global storage capacity will start to ebb after governments sought to fill their strategic reserves

Oil prices fell again to historical lows as the full impact of the largest oil output cut in history needed time to trickle down to the movement of barrels for May delivery.
Eventually global storage capacity will start to ebb after the low prices caused by the coronavirus pandemic encouraged massive purchases by governments seeking to fill their strategic reserves.
By the end of the week, Brent crude had retreated to $28.08 per barrel while WTI also fell to $18.27 per barrel.
Still the extremely wide spread between Brent and WTI is not helping to make US crude oil exports attractive as physical constraints seems to be dominating market fundamentals.
US crude oil stocks recorded their largest weekly increase at a time of record-low refined petroleum product demand.
Even though the “contango” market structure is too wide, traders and refiners are not showing any interest in buying more oil because they don’t have anywhere to store it. As a result, the US reported the biggest one-week crude oil storage build of all time as refiner demand plummeted.
Commercial crude inventories surged by 19.25 million barrels, eclipsing the previous record-build of 15.18 million barrels realized just one week earlier.
Surprisingly, the “price war” accusation persists with some analysts claiming that it is still simmering, despite the efforts of OPEC+ to restore balance to the market and help to stabilize the collapsing global economy.
The term itself is misleadingly belligerent as the reduction in official selling prices was about staying competitive during a period of unprecedented weak demand.
The Saudi energy minister described the situation as follows:
“A price war is when you are under-pricing heavily, with a view to try and restrain other producers to sell in a particular market. That is not our case. People wait until we do our pricing, and then they assess their pricing according to ours.”


Oil surges on hopes of new deal on output cuts

Updated 02 June 2020

Oil surges on hopes of new deal on output cuts

  • Brent price has doubled in five weeks
  • OPEC talks may be brought forward

DUBAI: Oil prices surged toward $40 a barrel on Monday as hopes rose for an early agreement to extend the big production cuts agreed by Saudi Arabia and Russia under the OPEC+ alliance.

Brent, the global benchmark, jumped by more 9 percent to nearly $39, continuing the surge that has doubled the price in five weeks — the best performance in its history. It recovered after record supply cuts agreed between the 23 countries of the OPEC+ partnership, and enforced cuts in US shale oil.

DME Oman crude, the regional benchmark in which a lot of Saudi Aramco exports are priced, rose above $40 a barrel for the first time since early March.

Market sentiment was buoyed by the possibility that the Organization of Petroleum Exporting Countries would agree with non-OPEC members to extend the cuts for a longer period than was agreed in April.

Oil analysts expect OPEC to fast track a “virtual” meeting to formally agree to maintaining cuts at the record 9.7 million barrels a day level. The meeting was scheduled for June 9, but bringing it forward would allow producers more time to set pricing levels.

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An official with one OPEC delegation told Arab News there was consensus among the 23 OPEC+ members for the new date, which could be as early as June 4. The meeting will also consider how long the current level of cuts would be maintained. Some OPEC members want it to run to the end of the year, other producers would prefer a two-month extension.

Omar Najia, global head of derivatives with trader BB Energy, told a forum run by Gulf Intelligence consultancy: “I’d be amazed if OPEC did not extend the higher level of cuts. As long as Saudi Arabia and Russia continue saying nice things to each other I’d expect the rally to continue.”

A Moscow source close to the oil industry said energy officials there had come to the conclusion that “the deal is working” and it was important to keep prices at an “acceptable” level.

Sentiment was also affected by a comparatively high level of compliance with the new cuts, running at about 75 percent among OPEC+ members, with only Iraq and Nigeria noticeable under-compliers.

Robin Mills, chief executive of Qamar Energy, said: “That’s where I’d expect it to be after two months in such a fluid situation. It will be even better in June.”