Iraqi Lawmaker Warns Of New Oil Price War. Following the discord within OPEC, the financial adviser to the Iraqi prime minister has warned that there is a danger of yet another oil price war within the cartel. "In the absence of coordination and understandings between OPEC producers, the beginnings of a price war will be formed again," Mazhar Mohammed Saleh said, as quoted by Reuters, yesterday.
Others See This As An Unlikely Scenario. While some think that the absence of coordination could lead to chaos within OPEC, others say that OPEC+ may see its strongest period in decades. The CIO of a large energy fund in Canada was quoted as saying: A total breakdown is highly unlikely, “the oil market globally is in a sweet spot, there is too much money on the line for all the players. Demand globally is strong, we are looking at a deficit of 2.3 to 2.5mbd in June, the highest since last year coming out of covid”
Biden Administration Urges OPEC To Raise Production. After a few months of very little high-profile correspondence between Washington and Vienna, the Biden Administration has now officially called on OPEC to increase production volumes. The White House is ‘’closely monitoring the OPEC+ negotiations and their impact on the global economic recovery from the COVID-19 pandemic,”.
Saudi Aramco Hikes OSPs To Asia, U.S. Aramco has set the August OSP for Arab light at $2.70/barrel, up 80 cents per barrel from July’s price, Reuters reports, while the OSP to the United States was set up 20 cents a barrel for August.
OPEC+ Updates - July 7
OPEC+ Updates - July 7
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: OPEC+ Updates - July 7
LONDON, July 6 (Reuters) - The Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, were forced to abandon talks on Monday after a rare public disagreement between the United Arab Emirates and Saudi Arabia over policy points. Below are the main sources of the disagreement and possible outcomes.
OPEC+ agreed last year to record output cuts of almost 10 million barrels per day (bpd), or about 10% of world output, as the coronavirus pandemic hit. The curbs have been gradually relaxed and currently stand at about 5.8 million bpd. The group plans to phase out the curbs by the end of April 2022.
The group failed to reach a deal in its latest virtual meeting that started from Thursday and continued until Monday because the UAE blocked some aspects of the pact.
The UAE on Friday accepted a proposal from Saudi Arabia to raise output in stages by about 2 million bpd from August to December 2021, on average adding 400,000 bpd each month. The UAE said with the pace of economic recovery around the world, the oil market will soon be in "dire need" of higher production.
However, the UAE rejected the extension of cuts beyond April 2022, when the current agreement terminates, without adjusting its baseline production - the level from which any cuts are calculated.
The UAE, the third-biggest oil producer in OPEC behind Saudi Arabia and Iraq, believes its baseline was originally set too low in October 2018 when the OPEC agreed on current figures.
The United Arab Emirates also believes the baseline is "outdated" since it does not reflect the growth of its production capacity as a result of billions of dollars of investments in recent years.
The country's baseline is currently at 3.168 million bpd. OPEC+ sources say the country wants to increase it by 20% to 3.8 million bpd. The OPEC+ pact has currently left about 30% of the UAE capacity idle.
The Emiratis have asked for their baseline to be reviewed and recalculated, but the idea has been rejected by Saudi Arabia.
The UAE has suggested its production level at April 2020 as a new baseline, but Riyadh believes that could undermine the commitment of other members to their baselines since at that time many countries had increased output as a result of a price war between Saudi Arabia and Russia.
"Looking at the current deadlock, it is unlikely that the UAE alone will be allowed to get a higher quota, because this will come at the expense of other members, in particular Saudi Arabia," said Rystad Energy analyst Louise Dickson.
The current impasse was not sustainable, according to Paul Horsnell, head of commodities research at Standard Chartered.
"We expect the eventual resolution to add to overall supply; either the UAE will stay inside the tent with a higher baseline, or it will choose (like Venezuela, Libya and Iran) to opt out of targets, causing further turbulence," Horsnell said.
OPEC+ agreed last year to record output cuts of almost 10 million barrels per day (bpd), or about 10% of world output, as the coronavirus pandemic hit. The curbs have been gradually relaxed and currently stand at about 5.8 million bpd. The group plans to phase out the curbs by the end of April 2022.
The group failed to reach a deal in its latest virtual meeting that started from Thursday and continued until Monday because the UAE blocked some aspects of the pact.
The UAE on Friday accepted a proposal from Saudi Arabia to raise output in stages by about 2 million bpd from August to December 2021, on average adding 400,000 bpd each month. The UAE said with the pace of economic recovery around the world, the oil market will soon be in "dire need" of higher production.
However, the UAE rejected the extension of cuts beyond April 2022, when the current agreement terminates, without adjusting its baseline production - the level from which any cuts are calculated.
The UAE, the third-biggest oil producer in OPEC behind Saudi Arabia and Iraq, believes its baseline was originally set too low in October 2018 when the OPEC agreed on current figures.
The United Arab Emirates also believes the baseline is "outdated" since it does not reflect the growth of its production capacity as a result of billions of dollars of investments in recent years.
The country's baseline is currently at 3.168 million bpd. OPEC+ sources say the country wants to increase it by 20% to 3.8 million bpd. The OPEC+ pact has currently left about 30% of the UAE capacity idle.
The Emiratis have asked for their baseline to be reviewed and recalculated, but the idea has been rejected by Saudi Arabia.
The UAE has suggested its production level at April 2020 as a new baseline, but Riyadh believes that could undermine the commitment of other members to their baselines since at that time many countries had increased output as a result of a price war between Saudi Arabia and Russia.
"Looking at the current deadlock, it is unlikely that the UAE alone will be allowed to get a higher quota, because this will come at the expense of other members, in particular Saudi Arabia," said Rystad Energy analyst Louise Dickson.
The current impasse was not sustainable, according to Paul Horsnell, head of commodities research at Standard Chartered.
"We expect the eventual resolution to add to overall supply; either the UAE will stay inside the tent with a higher baseline, or it will choose (like Venezuela, Libya and Iran) to opt out of targets, causing further turbulence," Horsnell said.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: OPEC+ Updates - July 7
“For us, it wasn’t a good deal,” UAE Minister of Energy and Infrastructure Suhail Al Mazrouei told CNBC on Sunday. He added that the country would support a short-term increase in supply, but wants better terms if the policy is to be extended through 2022.
Oil’s blistering rally this year — WTI has gained 57% during 2021 — meant that ahead of last week’s meeting many Wall Street analysts expected the group to boost production in an effort to curb the spike in prices.
“With no increase in production, the forthcoming growth in demand should see global energy markets tighten up at an even faster pace than anticipated,” analysts at TD Securities wrote in a note to clients.
“This impasse will lead to a temporary and significantly larger-than-anticipated deficit, which should fuel even higher prices for the time being. The summer breakout in oil prices is set to gather steam at a fast clip,” the firm added.
— CNBC’s Sam Meredith contributed reporting.
Oil’s blistering rally this year — WTI has gained 57% during 2021 — meant that ahead of last week’s meeting many Wall Street analysts expected the group to boost production in an effort to curb the spike in prices.
“With no increase in production, the forthcoming growth in demand should see global energy markets tighten up at an even faster pace than anticipated,” analysts at TD Securities wrote in a note to clients.
“This impasse will lead to a temporary and significantly larger-than-anticipated deficit, which should fuel even higher prices for the time being. The summer breakout in oil prices is set to gather steam at a fast clip,” the firm added.
— CNBC’s Sam Meredith contributed reporting.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: OPEC+ Updates - July 7
Goldman Sachs: World Desperately Needs Extra 5 Million Bpd To Avoid "Critically Low Inventories". As markets continue to speculate about what OPEC’s next step may be, investment bank Goldman Sachs (NYSE:GS) warns that the world is facing a serious supply deficit. Goldman’s Damien Courvalin claims that the global market needs an extra 5 million bpd in production to avoid ‘’critically low inventories’’
Explosion Rocks Iranian Oilfield Near Iraqi Border. Iranian media reported a large explosion at the Cheshmeh Khosh field near the Iraqi border on Tuesday afternoon. Local sources told Bloomberg that "Three oil workers were killed and four injured in an explosion on a pipeline that transfers oil from the Cheshmeh Khosh field." The oilfield is a relatively small one, which produces around 18,000 bpd of heavy crude.
Former U.S. Energy Secretary: Oil Prices Could ‘’Very Easily’’ Hit $100. In an interview with CNBC, former U.S. Energy Secretary Dan Brouillette said that “You could very easily see oil hitting $100 a barrel, potentially even higher,” He also warned that if a no-deal scenario could lead to a collapse in oil prices as countries would create some sort of ‘free for all’ scenario in which the taps would be opened. < MY TAKE is that Saudi Arabia and UAE would be foolish to let their little disagreement on UAE's quota unwind what the OPEC+ agreements have accomplished. Very soon this world will need every barrel of oil that OPEC and Russia can produce, so they just need to keep their deal together for a few months anyway.
Explosion Rocks Iranian Oilfield Near Iraqi Border. Iranian media reported a large explosion at the Cheshmeh Khosh field near the Iraqi border on Tuesday afternoon. Local sources told Bloomberg that "Three oil workers were killed and four injured in an explosion on a pipeline that transfers oil from the Cheshmeh Khosh field." The oilfield is a relatively small one, which produces around 18,000 bpd of heavy crude.
Former U.S. Energy Secretary: Oil Prices Could ‘’Very Easily’’ Hit $100. In an interview with CNBC, former U.S. Energy Secretary Dan Brouillette said that “You could very easily see oil hitting $100 a barrel, potentially even higher,” He also warned that if a no-deal scenario could lead to a collapse in oil prices as countries would create some sort of ‘free for all’ scenario in which the taps would be opened. < MY TAKE is that Saudi Arabia and UAE would be foolish to let their little disagreement on UAE's quota unwind what the OPEC+ agreements have accomplished. Very soon this world will need every barrel of oil that OPEC and Russia can produce, so they just need to keep their deal together for a few months anyway.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group