Oil Price moves higher on OPEC agreement to a gradual increase in production.
The Bloomberg headline earlier says that OPEC members have come to an agreement on principle for an output increase of 1 million barrels per day. In real terms when they implement the proposal, it will feed about 600,000 bpd back into the market. This is due to the fact that the increase is going to be done on a pro-rata basis and even if they stick to a 100% compliance, not many countries have the spare capacity to step up in order for the cartel to reach the 1 million bpd mark in total. < A I have been telling you.
In particular, Venezuela will no be able to come close to their quota. Discussions are still ongoing so we'll have to see if Venezuela is willing to let others step in and open the taps for them instead.
Oil Traders were expecting an increase of up to 1.5 million bpd, so we have a "relief rally" this morning.
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Reuters at 8:15 AM ET: OPEC ministers have reached an agreement in principle for a 1M bbl/day increase in nominal production, effective July 1, according to initial reports.
Oil Price - June 22
Oil Price - June 22
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil Price - June 22
WTI closed today at $69.35/bbl, which was just 3 cents below the high for the day.
WHY ???
IMO it is because the 1,000,000 BOPD increase in the production quotas that OPEC announced today, which is in reality just a 600,000 BOPD increase, is likely to be totally wiped out by continuing declines in Venezuela and Libya. When the full impact of the sanctions against Iran take hold, Iranian production will fall another million barrels per day.
The call for an increase in production from OPEC demanding members return to agreed quotes comes as 2/3s of the cartel member countries had been cutting output by more than required, pushing compliance 52% above the output curbs agreed in November 2016. < This is because they CAN'T INCREASE PRODUCTION, a fact that even the Wall Street Gang will eventually figure out.
While the oil-cartel appeared reluctant to give specific numbers on quotas, Saudi Arabia said the move would equate into a nominal output rise of around 1 million barrels per day (bpd), or 1% of global supply. < This will not happen quickly. I doubt that it is achievable this year.
Analysts said, however, that a number of producers in the OPEC-led accord would struggle to increase output, leading to a more modest boost in crude output. "It is important to note that the market should only see a practical increase of about 600,000 barrels a day as a number of countries in the accord aren't capable of increasing production," National Alliance said.
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What happened today was primarily a short covering rally. Some hedge funds betting on a larger production increase got hammered today. The traders will settle down over the weekend and we may see some pullback in the oil price on Monday. However, we are in the HIGHEST DEMAND PERIOD of the year for oil. U.S. and OECD oil inventories will continue to fall all summer. Keep in mind that it take about 60 days for oil produced in the Middle East to reach U.S. and European markets.
WHY ???
IMO it is because the 1,000,000 BOPD increase in the production quotas that OPEC announced today, which is in reality just a 600,000 BOPD increase, is likely to be totally wiped out by continuing declines in Venezuela and Libya. When the full impact of the sanctions against Iran take hold, Iranian production will fall another million barrels per day.
The call for an increase in production from OPEC demanding members return to agreed quotes comes as 2/3s of the cartel member countries had been cutting output by more than required, pushing compliance 52% above the output curbs agreed in November 2016. < This is because they CAN'T INCREASE PRODUCTION, a fact that even the Wall Street Gang will eventually figure out.
While the oil-cartel appeared reluctant to give specific numbers on quotas, Saudi Arabia said the move would equate into a nominal output rise of around 1 million barrels per day (bpd), or 1% of global supply. < This will not happen quickly. I doubt that it is achievable this year.
Analysts said, however, that a number of producers in the OPEC-led accord would struggle to increase output, leading to a more modest boost in crude output. "It is important to note that the market should only see a practical increase of about 600,000 barrels a day as a number of countries in the accord aren't capable of increasing production," National Alliance said.
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What happened today was primarily a short covering rally. Some hedge funds betting on a larger production increase got hammered today. The traders will settle down over the weekend and we may see some pullback in the oil price on Monday. However, we are in the HIGHEST DEMAND PERIOD of the year for oil. U.S. and OECD oil inventories will continue to fall all summer. Keep in mind that it take about 60 days for oil produced in the Middle East to reach U.S. and European markets.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil Price - June 22
Here is the official OPEC announcement: http://www.opec.org/opec_web/en/press_room/5072.htm
I think you will agree that it is not "crystal clear" what they are doing about production.
I think you will agree that it is not "crystal clear" what they are doing about production.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil Price - June 22
Comments from OilPrice.com writers:
OPEC issued a communique on Friday that called on a return to 100 percent compliance for the group, down from 152 percent in May. The announcement deferred country-specific allocations, likely because they could not agree on the details. The decision likely means that any country with spare capacity will be able to boost production. In practice, Saudi Arabia and Russia will carry the lion’s share. How individual countries make decisions about how much to produce, while still trying to stay below a collective cap, opens up a lot of uncertainty.
Oil up on vague outcome. Oil prices moved up on Friday morning, on expectations that the result from the OPEC+ meeting won’t lead to a supply glut. In recent days, there seemed to be a bit of convergence on a plan to boost production, perhaps by around 600,000 bpd. That amount would merely offset the declines from Venezuela over the past year, and would not plug the entire supply deficit facing the market.
“The market caught up a little in terms of realizing that the rumored increase was less than what is necessary to balance the market,” Emily Ashford, director of energy research at Standard Chartered, told the WSJ. “Any increase in production will come at the expense of spare capacity so that leaves the market much more vulnerable to future supply shocks,” she added.
OPEC eyed 1 mb/d increase, but couldn’t agree. OPEC’s technical committee recommended a supply increase of about 1 million barrels per day, although press reports widely noted that such an increase would likely only be nominal, and actual barrels put onto the market would reach only about 600,000 bpd because several countries have no ability to boost output. The recommendation came even as Iranian oil minister Bijan Zanganeh walked out of a meeting on Thursday night, although he met with his Saudi counterpart Friday morning. The discord likely led to the vague decision on 100 percent compliance, rather than on country-specific increases.
OPEC issued a communique on Friday that called on a return to 100 percent compliance for the group, down from 152 percent in May. The announcement deferred country-specific allocations, likely because they could not agree on the details. The decision likely means that any country with spare capacity will be able to boost production. In practice, Saudi Arabia and Russia will carry the lion’s share. How individual countries make decisions about how much to produce, while still trying to stay below a collective cap, opens up a lot of uncertainty.
Oil up on vague outcome. Oil prices moved up on Friday morning, on expectations that the result from the OPEC+ meeting won’t lead to a supply glut. In recent days, there seemed to be a bit of convergence on a plan to boost production, perhaps by around 600,000 bpd. That amount would merely offset the declines from Venezuela over the past year, and would not plug the entire supply deficit facing the market.
“The market caught up a little in terms of realizing that the rumored increase was less than what is necessary to balance the market,” Emily Ashford, director of energy research at Standard Chartered, told the WSJ. “Any increase in production will come at the expense of spare capacity so that leaves the market much more vulnerable to future supply shocks,” she added.
OPEC eyed 1 mb/d increase, but couldn’t agree. OPEC’s technical committee recommended a supply increase of about 1 million barrels per day, although press reports widely noted that such an increase would likely only be nominal, and actual barrels put onto the market would reach only about 600,000 bpd because several countries have no ability to boost output. The recommendation came even as Iranian oil minister Bijan Zanganeh walked out of a meeting on Thursday night, although he met with his Saudi counterpart Friday morning. The discord likely led to the vague decision on 100 percent compliance, rather than on country-specific increases.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group