From RBC Capital Global Commodity Research on 7-8-2021
Market participants seem concerned that OPEC+ is heading for bad breakup, but
we think that the disorderly return of 5.8 mb/d is not the inevitable outcome of
this latest impasse. Given the increased headline risk and directionless volatility,
I’ll square my book and re-calibrate my position to protect my strong YTD P&L
until the demand growth story regains the narrative”, is a popular view this week.
Natural gas prices remain in elevated territory after a heat wave has pushed it
to a higher level, compounded by today's well below consensus storage reading,
but closer to normal weather is forecasted in the near-term.
OPEC+ Opinion - July 9
OPEC+ Opinion - July 9
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: OPEC+ Opinion - July 9
From BofA Equity Research
OPEC: is the UAE ask really that difficult to accommodate?
09 July 2021
As of the time of this writing OPEC+ ’ n ex t m o ve still hang s in the balance with anothe r
curve ball for oil markets following the breakdown in talks between UAE and Saudi
occurred on July 5 th . For oil markets the critical question is whether this points to tighter
markets or not: the existing agreement only sets OPEC+ production increases through
July ; t hat means no new incremental supply into what is widely expected to be a demand
recovery in 2H21 – but one still mired in COVID uncertainty which perhaps buys OPEC+
time to reassesss th e pace of any required incremental supply to balance markets. For
now the proposal seemingly on the table – to incr ease supply by 400mbd / m onth from
Aug -Dec, and extend the agreement through end 2022 is on hold – and arguably points
to a tighter market ne ar term, but considerable uncertainty after April 2022. Or does it?
OPEC ’ s own estimates suggest oil demand grows 5mmbd in 2H21 ; even with the UAE ’ s
claim that current production is 1mm bpd below capacity after 5yrs of investment, a
proportionate increase may be the compromise that satisfies Saudi after all . Expanding
OPEC+ definition of available spare capacity may also prove a warning shot to US E&P ’ s.
For now, that the market hates unc ertainty is a truism that has supported profit taking
as mentio n e d in OIM 554 . But the market is still tight, the prospects for now have
tightened across the the curve, and all with an OPEC+ supply overhang that defines the
scale of ongoing intervention – and no call for investment or renewed growth from US
E&Ps.
OPEC: is the UAE ask really that difficult to accommodate?
09 July 2021
As of the time of this writing OPEC+ ’ n ex t m o ve still hang s in the balance with anothe r
curve ball for oil markets following the breakdown in talks between UAE and Saudi
occurred on July 5 th . For oil markets the critical question is whether this points to tighter
markets or not: the existing agreement only sets OPEC+ production increases through
July ; t hat means no new incremental supply into what is widely expected to be a demand
recovery in 2H21 – but one still mired in COVID uncertainty which perhaps buys OPEC+
time to reassesss th e pace of any required incremental supply to balance markets. For
now the proposal seemingly on the table – to incr ease supply by 400mbd / m onth from
Aug -Dec, and extend the agreement through end 2022 is on hold – and arguably points
to a tighter market ne ar term, but considerable uncertainty after April 2022. Or does it?
OPEC ’ s own estimates suggest oil demand grows 5mmbd in 2H21 ; even with the UAE ’ s
claim that current production is 1mm bpd below capacity after 5yrs of investment, a
proportionate increase may be the compromise that satisfies Saudi after all . Expanding
OPEC+ definition of available spare capacity may also prove a warning shot to US E&P ’ s.
For now, that the market hates unc ertainty is a truism that has supported profit taking
as mentio n e d in OIM 554 . But the market is still tight, the prospects for now have
tightened across the the curve, and all with an OPEC+ supply overhang that defines the
scale of ongoing intervention – and no call for investment or renewed growth from US
E&Ps.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: OPEC+ Opinion - July 9
Friday afternoon from OilPrice.com
In mid-afternoon trading on July 9th WTI was up over $1.50/bbl to $74.50: Seven straight weeks of inventory draws didn’t go unnoticed, and according to the EIA, U.S. gasoline demand rose by 870,000 bpd last week as summer driving season heats up. U.S. gasoline consumption figures reached their highest level since 2019, and yesterday’s crude inventory report helped oil prices back in the black.
Vienna Stays Silent Amid OPEC+ Impasse. While the Joint Ministerial Monitoring Committee (JMMC) of OPEC+ still has to decide on a new official meeting, behind the scenes, high-placed Russian and U.S. officials are said to have talks to convince both camps of a reasonable output hike.
Upside For Oil Prices Limited Without OPEC+ Agreement. Despite the strong demand fundamentals in the U.S., markets continue to gauge the impact of the discord within the OPEC+ alliance. Reuters quoted Stephen Brennock of oil broker PVM as saying: "Clearly, U.S. oil markets are tight. However ... the only way to prevent further losses is for the threat of an OPEC+ price war to be contained," he added.
New Full-Blown Oil Price War Seems Unlikely. As we mentioned in Tuesday’s newsletter, the risk of a new 2020-style price war is low. The OPEC+ group as a whole is currently reaping the benefits of a much tighter oil market and it’s in no one’s interest to destroy the current price environment. According to Rystad Energy’s Louise Dickson: ‘’It is in the interest of the group to provide some leniency to the UAE and other supply hawks to produce a bit more within the framework of the deal instead of triggering a free for all supply regime of chaos.’’
In mid-afternoon trading on July 9th WTI was up over $1.50/bbl to $74.50: Seven straight weeks of inventory draws didn’t go unnoticed, and according to the EIA, U.S. gasoline demand rose by 870,000 bpd last week as summer driving season heats up. U.S. gasoline consumption figures reached their highest level since 2019, and yesterday’s crude inventory report helped oil prices back in the black.
Vienna Stays Silent Amid OPEC+ Impasse. While the Joint Ministerial Monitoring Committee (JMMC) of OPEC+ still has to decide on a new official meeting, behind the scenes, high-placed Russian and U.S. officials are said to have talks to convince both camps of a reasonable output hike.
Upside For Oil Prices Limited Without OPEC+ Agreement. Despite the strong demand fundamentals in the U.S., markets continue to gauge the impact of the discord within the OPEC+ alliance. Reuters quoted Stephen Brennock of oil broker PVM as saying: "Clearly, U.S. oil markets are tight. However ... the only way to prevent further losses is for the threat of an OPEC+ price war to be contained," he added.
New Full-Blown Oil Price War Seems Unlikely. As we mentioned in Tuesday’s newsletter, the risk of a new 2020-style price war is low. The OPEC+ group as a whole is currently reaping the benefits of a much tighter oil market and it’s in no one’s interest to destroy the current price environment. According to Rystad Energy’s Louise Dickson: ‘’It is in the interest of the group to provide some leniency to the UAE and other supply hawks to produce a bit more within the framework of the deal instead of triggering a free for all supply regime of chaos.’’
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group