RBC Capital's take on the oil market - Nov 22
Posted: Tue Nov 22, 2022 2:01 pm
OPEC+ Quick Take: Way Too Early
Crude Whipsaws on OPEC+ Production Decision Headlines
November 21, 2022
Today’s Wall Street Journal article stating that OPEC+ is considering a 500 kb/d increase at
the December 4 OPEC+ ministerial meeting sent oil tumbling, but we contend that it is way
too early to make definitive calls on the outcome and that a variety of factors will influence
the final production decision in the days leading up to the meeting. We believe the recent
downward price action driven by renewed concerns about rising Covid case counts and
aggressive Fed rate hikes have only bolstered Riyadh’s conviction that they made the right
move in October and that they will endeavor to avoid any action that sparks a sharp post
meeting sell-off next month. If anything, today’s price rout will likely only strengthen the
hand of those pushing for a cautious policy course until there is clear information about the
size of the Russia supply gap following the December 5 launch of the EU sixth package of
sanctions and the G7 price cap plan. Certainly the Saudi Ministry’s strong statement denying
an increase is being actively considered, and suggestion that further cuts are not entirely off
the table, should give market participants pause about predicting a policy reversal at the
next meeting.
Relations between Washington and Riyadh have seemingly improved since the angry
aftermath of the 2 mb/d headline production cut decision. Last week’s State Department
Sovereign Immunity decision can be read as a sign that the Biden administration is walking
back from a wholesale revaluation of the bilateral relationship that would potentially
include an arm sales cut off and support for congressional NOPEC legislation. Moreover,
we do not entirely rule out the energy considerations factored into the White House
deliberations given that Europe will need to secure around 1.5 mb/d from alternative
suppliers once the Russian seaborne oil embargo commences and Germany and Poland
forgo Russian pipeline imports. Nonetheless, we think the Kingdom will seek to strike a
balance between assisting Europe with additional barrels and preventing a sell off that would
imperil the OPEC+ producers’ newly bolstered balance sheets.
Hence, we see a significant chance of a “stay the course” decision until there is clear
evidence of a real Russia supply disruption but acknowledge that an OPEC baseline
adjustment that could lead to a modest increase could still be considered. Multiple
scenarios will invariably be discussed in the days immediately preceding the December
meeting. Above all, we think that Saudi Arabia and the OPEC+ producers will endeavor to
prevent a re-run of the ill-fated summer of 2018 production surge, which saw prices crater
after they answered the White House call to fill an Iran sanctions supply gap that failed to
materialize after the October surprise of seven sanctions waivers for importers of Iranian oil.
Hence, we think OPEC+ will likely err on the side of caution this time and wait to see how
the EU sanctions and G-7 price cap plan pan out, as well as more clarity on the macro
backdrop, before making major production adjustments.
------------------------------------
I get over a dozen reports from the Wall Street Gang each day. IMO RBC Capital has the best analysis on the global oil market. Team Biden has the lowest level of knowledge and seems to be clueless when it comes to common sense energy policy.
Crude Whipsaws on OPEC+ Production Decision Headlines
November 21, 2022
Today’s Wall Street Journal article stating that OPEC+ is considering a 500 kb/d increase at
the December 4 OPEC+ ministerial meeting sent oil tumbling, but we contend that it is way
too early to make definitive calls on the outcome and that a variety of factors will influence
the final production decision in the days leading up to the meeting. We believe the recent
downward price action driven by renewed concerns about rising Covid case counts and
aggressive Fed rate hikes have only bolstered Riyadh’s conviction that they made the right
move in October and that they will endeavor to avoid any action that sparks a sharp post
meeting sell-off next month. If anything, today’s price rout will likely only strengthen the
hand of those pushing for a cautious policy course until there is clear information about the
size of the Russia supply gap following the December 5 launch of the EU sixth package of
sanctions and the G7 price cap plan. Certainly the Saudi Ministry’s strong statement denying
an increase is being actively considered, and suggestion that further cuts are not entirely off
the table, should give market participants pause about predicting a policy reversal at the
next meeting.
Relations between Washington and Riyadh have seemingly improved since the angry
aftermath of the 2 mb/d headline production cut decision. Last week’s State Department
Sovereign Immunity decision can be read as a sign that the Biden administration is walking
back from a wholesale revaluation of the bilateral relationship that would potentially
include an arm sales cut off and support for congressional NOPEC legislation. Moreover,
we do not entirely rule out the energy considerations factored into the White House
deliberations given that Europe will need to secure around 1.5 mb/d from alternative
suppliers once the Russian seaborne oil embargo commences and Germany and Poland
forgo Russian pipeline imports. Nonetheless, we think the Kingdom will seek to strike a
balance between assisting Europe with additional barrels and preventing a sell off that would
imperil the OPEC+ producers’ newly bolstered balance sheets.
Hence, we see a significant chance of a “stay the course” decision until there is clear
evidence of a real Russia supply disruption but acknowledge that an OPEC baseline
adjustment that could lead to a modest increase could still be considered. Multiple
scenarios will invariably be discussed in the days immediately preceding the December
meeting. Above all, we think that Saudi Arabia and the OPEC+ producers will endeavor to
prevent a re-run of the ill-fated summer of 2018 production surge, which saw prices crater
after they answered the White House call to fill an Iran sanctions supply gap that failed to
materialize after the October surprise of seven sanctions waivers for importers of Iranian oil.
Hence, we think OPEC+ will likely err on the side of caution this time and wait to see how
the EU sanctions and G-7 price cap plan pan out, as well as more clarity on the macro
backdrop, before making major production adjustments.
------------------------------------
I get over a dozen reports from the Wall Street Gang each day. IMO RBC Capital has the best analysis on the global oil market. Team Biden has the lowest level of knowledge and seems to be clueless when it comes to common sense energy policy.