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WTI 49.79 -0.26 -0.52%
Moody's Cuts Oil Price Forecast
Tue, 10/20/2015 - 11:37am
by Andy Szal, Digital Reporter
Moody's expects the price of crude oil to recover more slowly than originally anticipated. Reports showed that the bond ratings agency downgraded its 2016 forecasts for both the Brent and West Texas Intermediate benchmark crude oil indexes by $4.
The Brent index forecast for next year now stands at $53 per barrel, while WTI is at $48 per barrel. The 2017 prices are each expected to increase by $7, a decline of $5 from Moody's previous analysis.
Moody's said that U.S. oil production only recently began to wane following months of declining oil rig counts.
Higher production in Saudi Arabia and Russia is also contributing to an ongoing over-supply of oil, particularly in a sluggish global economy. Moody’s said that overall global production isn't expected to decline until 2016 at the earliest, the Houston Chronicle reported.
Although Moody's believes the current glut in the global oil supply won't dissipate as quickly as previously projected, other analysts said ongoing cuts in capital spending should eventually help rein in supply.
Michele Della Vigna of Goldman Sachs told CNBC that although the next six to nine months should remain difficult, "longer term, we start to see some adjustment mechanisms coming into place."
Oil production from the U.S.'s fracking sites, as well as rigs in Saudi Arabia and Iraq, should grow at a slower pace.
The addition of Iran's vast oil reserves to the global market, however, could further complicate the oil price forecast if world leaders sign off on a nuclear deal that would ease sanctions against the Middle Eastern nation.
“Although years of underinvestment have probably hampered the country’s production capacity significantly, the possibility or reality of higher Iranian exports will weigh on oil prices through at least early 2017,” Moody's wrote, according to the Chronicle.
http://www.chem.info/news/2015/10/moodys-cuts-oil-price-forecast?cmpid=horizontalcontent
OPEC Output Rises, Complicating Cartel's Price-Boosting Plan
1 hour 38 min ago
by ANGELA CHARLTON, Associated Press
PARIS (AP) — Oil production from OPEC nations hit a record last month, according to an international energy group, highlighting the cartel's challenge in trimming output to drive up prices.
The International Energy Agency said Tuesday that production from the Organization of the Petroleum Exporting Countries hit a record high in September of 33.64 million barrels a day.
Last month, OPEC agreed to reduce daily output to between 32.5 million and 33 million barrels. The price of crude has gained about 15 percent since that proclamation.
"Now the real work starts," IEA said in its monthly report. OPEC has not decided how it will achieve production cuts — including which countries will agree to sacrifice output. They aim to draw up a plan before a meeting Nov. 30 in Vienna.
IEA said OPEC output increased as production from Iraq hit an all-time high and Libya reopened ports to export more crude. Production in non-OPEC member Russia hit a post-Soviet record.
As a result, the global supply of oil grew by 600,000 barrels a day in September, according to IEA.
While supply is running high, the IEA said demand is slowing along with the global economy — a combination that could pressure oil prices. The IEA forecast that the market will remain oversupplied through mid-2017 if OPEC doesn't enact the cuts it pledged last month in Algeria.
"OPEC has abandoned its free-market policy set in train nearly two years ago. Global oil inventories are far too high — in the view of some producers - and they aren't being worked off nearly fast enough," the IEA said. "The current price of oil has caused discomfort for all producers."
The task of carrying out the production-cut pledge will be complicated if, as reported, Iran, Libya and Nigeria are exempted from the cuts for various reasons. The IEA said further increases from those three nations means bigger cuts would have to be made by others, such as Saudi Arabia, to hit the reduction target.
It's also unclear how much non-OPEC members, notably Russia, will play along. Russian President Vladimir Putin intimated at a meeting in Istanbul on Monday that Russia was ready to support OPEC, which further buoyed oil prices.
Oil prices hit their highest level in a year on Monday but fell Tuesday. In afternoon trading, benchmark U.S. crude was down 64 cents to $50.71 a barrel in New York. Brent, the international standard, fell 81 cents to $52.33 a barrel in London.
Goldman Sachs analysts said oil prices could fall back to $43 if OPEC fails to finalize an output-cutting deal in Vienna. Even if there is an agreement, they said, it is unlikely that it would balance supply and demand next year because of the chance that some OPEC countries won't abide by targets and that non-OPEC nations will boost production.
In the summer of 2014, oil was trading above $100 a barrel, but increased output from non-OPEC countries, particularly the United States, created an oversupply. Instead of cutting production, OPEC opted to pump at high volumes to maintain market share and perhaps drive out U.S. shale oil and gas producers, who have higher operating costs.
http://www.chem.info/news/2016/10/opec-output-rises-complicating-cartels-price-boosting-plan?et_cid=5614410
WTI 50.02 -0.77 -1.52%
Gulf Coast Refineries Resume Operations After Hurricane Matthew
By Irina Slav - Oct 10, 2016, 9:13 AM CDT
Crude oil refineries and gas terminals along the Gulf Coast have taken steps to resume operations in the wake of Hurricane Matthew, which did only limited damage to the energy infrastructure in the U.S. Southeast, according to trade associations and representatives of the refineries.
All terminals in Fort Lauderdale and Tampa have reopened, along with several others in Florida. The four refineries in Georgia remain closed, as do those in South Carolina. Seven terminals in Jacksonville also remain closed for now. The combined daily processing capacity of these seven accounts for a total of 9.48 million barrels of crude.
None of the refineries in the region sustained any damages, said Ned Bowman, CEO of the Florida Petroleum Marketers’ Association, adding that “Florida escaped pretty easily. It could have been a lot, lot worse.”
Major ports on the Floridian coast have also reopened, ensuring continued supply of crude, most of which Florida’s refineries get by tankers. The refineries and terminals in South Carolina and Georgia are currently surveying the damages, some of them hoping to reopen today.
Hurricane Matthew is the strongest storm to hit the region since 2007, when category 5 Hurricane Felix delivered 160 mph winds and caused the deaths of over 130 people.
Natural disasters have a long history of disrupting oil and gas production and supplies.
Related: Why Dividends Are Still A Must For Big Oil
In 2008 Hurricane Ike crashed into the Gulf Coast, knocking about 700,000 barrels per day of oil production offline in the Gulf. It also forced several refineries to close their doors, dropping gasoline production by around 300,000 barrels per day.
Hurricane Rita in September 2005 struck the Gulf Coast as well, only a month after Hurricane Katrina, forcing many oil platforms offshore to close down. More than 34 million barrels of oil were not produced because of the two hurricanes, equivalent to about 6 percent of a year’s worth of production.
http://oilprice.com/Latest-Energy-News/World-News/Gulf-Coast-Refineries-Resume-Operations-After-Hurricane-Matthew.html
WTI 51.26 +1.45 +2.91%
WTI 49.35 -0.46 -0.92%
If you were Saudi Arabia, at this point in time, you would:
1. postpone your Saudi Aramco IPO
2. blow up somebody else's tankers, refinery, pipeline, etc.
3. cut back your own production.
4. go public any way even though you will only get 50 cents on the dollar compared to what you would get if oil was at $65?
5. something else...you tell me.
WTC 50.53 +0.70 +1.40%
Added more at 57.35 right at the bell. Now it is 57.23.
Check out how the Deutsche Bank Group is manipulating gold, especially the paper contracts.
Take advantage of the market-maker manipulations.
The Saudis know they are in big trouble. Saudi Arabia is too heavily dependent on oil.
Total manipulation. Follow the $$$$$$$ (which is what I do full time).
Oil Hits $50 As OPEC Suggests It Might Deepen Output Cuts
By Tsvetana Paraskova - Oct 06, 2016, 9:01 AM CDT
Should OPEC members find that the oil market needs more cuts, the cartel could decide to lower production by one percent more than last week’s deal-to-make-a-deal, Algerian Energy Minister Nouredine Bouterfa has said to local Ennahar TV.
Algeria hosted last week a meeting of the OPEC producers, which, against most odds and expectations, managed to reach a deal, to make a deal to cut production in the future by some 700,000 barrels per day to a production band of between 32.5 million bpd and 33 million bpd.
“We will evaluate the market in Vienna by the end of November and if 700,000 barrels are not enough, we will go up. Now that OPEC is unified and speaks in one voice everything is much easier and if we need to cut by 1 percent, we will cut by 1 percent,” Bouterfa told Ennahar, as reported by Reuters.
Ennahar TV tweeted on Thursday that Bouterfa had also said that OPEC and non-OPEC producers would meet in Istanbul on October 8-13.
On Wednesday, Venezuela’s oil ministry website confirmed that Venezuelan oil minister Eulogio Del Pino would attend the Istanbul meeting, alongside ministers from OPEC partners Saudi Arabia, Algeria, Gabon, Qatar and the UAE, plus non-OPEC Russia. The ministers will discuss how to implement the production cut agreed upon last week and how to advance talks to include non-OPEC producers, Del Pino says.
At the meeting in Algiers, OPEC agreed in principal on a range of production limits, with details on who’s cutting how much to be decided at the OPEC November 30 meeting in Vienna. In general, Libya and Nigeria – that have seen a lot of civil unrest and violence affecting oil output in recent months – will be exempted from production cuts, as will Iran. However, with Libya’s upcoming additional output, and OPEC’s track record of not sticking firmly to its decisions, the market is still guessing whether a specific deal will be hammered out in November.
By Tsvetana Paraskova for Oilprice.com
http://oilprice.com/Energy/Crude-Oil/Oil-Hits-50-As-OPEC-Suggests-It-Might-Deepen-Output-Cuts.html
Pipeline Outage Could Lead To Another Gasoline Price Spike
By Nick Cunningham - Oct 05, 2016, 4:46 PM CDT
Gasoline prices in the U.S. Southeast spiked in September after a major gasoline pipeline suffered a leak and was forced to temporarily shut down. The Southeast may see gasoline prices rise again because the problems with the pipeline are not over.
The Colonial Pipeline is a 2.5 million barrel per day system that carries refined products such as gasoline, diesel, jet fuel and heating oil. It consists of a massive 5,500 miles of pipeline, traveling from the Gulf Coast up to the mid-Atlantic. Fuels refined along the Gulf Coast can reach as far as New York Harbor.
On September 9, the Colonial Pipeline system was hit with a “system integrity issue” in Alabama, the company said, and was forced to shut down Line 1. That was a euphemism for a gasoline leak in the pipeline – about 8,000 barrels leaked in Alabama – which interrupted the flow of 1.4 million barrels per day of gasoline.
That was a problem for the U.S. Southeast because “there are no refineries between Alabama and Pennsylvania that produce substantial quantities of transportation fuels,” the U.S. Energy Information Administration said in September, adding that “the U.S. Southeast is supplied primarily by pipeline flows from refineries along the U.S. Gulf Coast and supplemented by marine shipments from the U.S. Gulf Coast and imports.”
The outage of the Colonial Pipeline led to a higher gasoline prices at the pump because there are few alternatives. Some cities with ports such as Savannah, Georgia, and Charleston, South Carolina, can receive shipments from the global market, but otherwise the region is isolated. When Colonial shutdown, some retail outlets ran out of fuel. A Virginia petroleum association member told Argus Media that it was “the worst outage he had seen in 17 years.” The outage led to an 8-cent per gallon increase in PADD 1C, which covers the southeast.
(Click to enlarge)
Interestingly, the pipeline leak also had broader effects on the gasoline market. The disruption led to a record drawdown in gasoline stocks in the southeast. But upstream, at the beginning of the pipeline in the Gulf Coast, refined gasoline had nowhere to go. So the Gulf Coast saw a record buildup in gasoline stocks following the shutdown of the Colonial Pipeline. Gasoline prices along the Gulf Coast plunged below $2 per gallon in September as a result.
(Click to enlarge)
The two-week outage was the longest disruption in more than two decades for the pipeline. However, the problems with the Colonial Pipeline may not be over yet. Argus Media reports that more leaks will need to be fixed and the pipeline could shut down again before the year is out. In fact, 2016 is now the worst year in more than a decade for leaks in the pipeline system, with at least six shutdowns recorded in federal data. Another shutdown is looming. Argus Media says that Colonial will have to fix compromised segments of the pipeline in Georgia and Atlanta, which could once again send gasoline prices up.
"It is incredible … the risk profile we have with one pipeline carrying half the gasoline supply to the east coast — 70pc in many southeastern states," U.S. energy secretary Ernest Moniz said in late September. But the Colonial Pipeline operator has not disclosed the reason for the leak or why 2016 is the worst year for leaks in years. They also have not said when they might shut down again for more repairs.
A lengthy outage could send gasoline prices up in the Southeast. On the other hand, gasoline prices could see some relief in the coming days as Hurricane Matthew barrels up the Eastern Seaboard. The Hurricane is not expected to wreck any infrastructure, so supply outages are not too much of a concern. Instead, major storms tend to put a huge dent in consumption as millions of people stay home. "This is a demand destroyer. That's the bottom line," Tom Kloza, global head of energy analysis at OPIS, told CNBC.
By Nick Cunningham of Oilprice.com
http://oilprice.com/Energy/Energy-General/Pipeline-Outage-Could-Lead-To-Another-Gasoline-Price-Spike.html
Goldman Sachs: ‘Very Oversupplied’ Market To Stop Crude Rally At $55
By Tsvetana Paraskova - Oct 05, 2016, 9:28 AM CDT
Low-cost players such as Russia, combined with an upcoming ‘wall of supply’ from large-scale projects commissioned in the past 5-10 years, and additional supplies from Libya and Nigeria will make it difficult for crude prices to rise above US$55 in the near term, Goldman Sachs’s head of commodities research, Jeff Currie, said in an interview with Bloomberg television.
Oil prices have surged by more than US$5 since the OPEC deal on output was announced a week ago.
At the time of writing, WTI Crude traded up 1.87 percent to US$49.60 and Brent Crude was up 1.75 percent at US$51.76, also on the back of Tuesday’s report by the American Petroleum Institute (API), which showed an unusually strong draw of 7.6 million barrels of oil despite expert predictions that U.S. supplies would increase by 1.5 million units in the wake of multiple draw weeks.
Speaking to Bloomberg, Goldman Sachs’s Currie said he sees the market “very oversupplied” next year, and it was the oversupply side that made the OPEC members reach the agreement to limit the cartel’s production to a band of between 32.5 million and 33 million barrels a day, according to the analyst.
Low-cost players like Russia are increasing production, as well as market share, and that’s the “core of the new oil order”, the analyst noted.
Large international oil companies “destroy wealth, and right now they are not focused on return on equity; they are focused on creating cash flow,” Currie said. These companies are focused on “bringing on large-scale projects that could guarantee cash flows over the forward time frame; they are not focused on return”.
Last week, Goldman Sachs said that the OPEC output deal could add US$10 to crude prices. The Goldman analyst team, however, noted that it was skeptical about the chances of success for the deal. The bank pointed out that OPEC members don’t always feel obliged to stay within quotas, which will contribute to the ongoing uncertainty on oil markets.
By Tsvetana Paraskova for Oilprice.com
http://oilprice.com/Energy/Energy-General/Goldman-Sachs-Very-Oversupplied-Market-To-Stop-Crude-Rally-At-55.html
WTI 49.51 -0.32 -0.64%
WTI high-of-day was 49.01. It didn't stay in the 49's very long. lol
Good call! LOD was 62.93.
Oil prices continue to fall as doubts over OPEC agreement build
By Jenny W. Hsu and Sara McFarlane
Published: Sept 30, 2016 6:49 a.m. ET
Algiers deal sows seeds of doubt
Oil futures fell Friday as investors cashed in their recent gains and skepticism grew over a tentative agreement to cut production among members of the Organization of the Petroleum Exporting Countries.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in November CLX6, +0.02% traded at $47.26 a barrel, down $0.57, or 1.2%, in the Globex electronic session. The November Brent crude LCOX6, -0.43% on London’s ICE Futures exchange, which expires today, fell $0.67, or 1.7%, to $49.14 a barrel. The December contract LCOZ6, -0.12% fell 64 cents, or 1.3%, to $49.18 a barrel.
Oil prices have risen more than 7% over the past two sessions after OPEC caught the market off guard by reaching to a preliminary pact to slash the group’s output between 32.5 million barrels a day and 33 million barrels a day, down from the levels of 33.2 million barrels a day in August. A more definitive policy, including production cap for individual members, will be discussed and possibly ratified at OPEC’s next meeting on Nov. 30 in Vienna.
‘Deepwater Horizon:’ The true story of those on board the rig(2:48)
On April 20 2010, the Deepwater Horizon oil rig exploded in the Gulf of Mexico, creating the worst spill in U.S. history. Now a film has been released which tells the story of those working on board. Mark Kelly reports.
After the initial knee-jerk rally, doubts have settled in as to whether the deal would materialize, given the longstanding tension among the members. Iraq has already said that it doesn’t trust the production numbers OPEC typically relies on.
Analysts also expressed concern that cartel members have not always been forthcoming about their production levels and have not abided by the quota in the past.
“OPEC has no way of enforcing the quotas,” said Jonathan Chan, an energy analyst at Phillip Futures.
The fact that OPEC was able to reach consensus on a production cut was seen as bullish, but analysts were less certain that it would result in supply being brought in line with demand in a market awash with oil.
“OPEC may have reasserted its relevance and shown that it still has the ability to exert influence on the oil market but it has quickly dawned on many that OPEC’s change of strategy may not be a panacea for the global oil glut,” said brokerage PVM.
Russia’s willingness to go along with the deal is also a wild card.
“Keep in mind most oil producers are private companies and logic would motivate them to increase output in response to higher prices,” said Mohab Kamel, a trader at the Geneva-based Magma oil.
U.S. shale producers, whose technology enables them to increase oil production quickly, may also swoop in and widen the spigots to capture the higher margins, analysts said.
Even without a collective cut, some say global output is already slowing. Upstream production in Venezuela, Gabon, India, Mexico and China has been falling since the initial onset of the price collapse in mid-2014.
Production by Saudi Arabia is also edging lower as the kingdom usually curbs its output in the winter months given lesser domestic demand for power generation. BMI Research expects a daily decline of 360,000 barrels in output between August and November this year.
Nymex reformulated gasoline blendstock for October RBZ6, -0.19% — the benchmark gasoline contract — fell 1.4% to $1.42 a gallon. ICE gasoil changed hands at $439.25 a metric ton, down $5.50 from the previous settlement.
Oil prices continue to fall as doubts over OPEC agreement build
http://www.marketwatch.com/story/oil-prices-continue-to-fall-as-doubts-over-opec-agreement-build-2016-09-30
How Long Will OPEC Hot Air Continue To Fuel Oil Prices
By Nick Cunningham - Sep 29, 2016, 3:51 PM CDT
OPEC shocked the oil markets on Wednesday, moving past their differences to agree on the first collective production cut since the global financial crisis. The surprise agreement sent oil prices skyrocketing by more than 6 percent.
The announcement had such a strong impact on oil prices precisely because a production cut was not thought to be under consideration. The meeting had been billed as “consultative,” that is, not a meeting where decisions would be made. OPEC officials also said that the deal that was on the table was just for an output “freeze,” not a cut. If OPEC wanted to signal to the world that it could still function as a group and was still relevant to the oil markets, it succeeded.
However, the devil will be in the details. OPEC said that it would trim its output from the current 33.24 million barrels per day (mb/d) to 32.5 mb/d. But it did not apportion the reductions to any of its members. Who will cut and by how much will be decided at the official meeting in Vienna on November 30.
Given OPEC’s track record of discord, one could be forgiven for being distrustful of the group’s ability to not only cordially agree to allocated production cuts, but even if such an outcome can be obtained, it is also possible that individual members do not abide by the limits. Each member is not eager to cap their production, and two years of low oil prices has made them intent on making up lost revenues on volume.
Putting aside that skepticism, if OPEC can proportion out roughly 740,000 barrels per day of production cuts between its members, even then the impact should be viewed by the oil market with a bit of a shrug, or at least a skeptical eye. That amount is not exactly a game changer. First of all, that is roughly the volume that was lost in Nigeria for much of this year due to attacks from the Niger Delta Avengers. Oil prices did rise quite a bit between February and June when the attacks were at their most intense, but they did not reach much beyond $50 per barrel.
Another reason why the OPEC cut may not be a very big deal is because Saudi Arabia may have been planning on reducing production anyways. Saudi Arabia typically ramps up production in summer to meet peak season demand – the kingdom uses oil in its electricity sector and air conditioning needs spike during the sweltering summer months. Then, as temperatures cool, output falls a bit.
Related: The Shakeout Continues: 100 Oil And Gas Bankruptcies Yet To Come
Saudi Aramco might have had output cuts slated for this fall and winter. Agreeing to an official “production cut” with OPEC members could be a bit of clever marketing for an operational plan already in the works. From Saudi Arabia’s perspective, if that brought other OPEC members on board for some production limits, then it is a win without involving much sacrifice.
To be sure, a seasonal cut from Saudi Arabia was not inevitable – if OPEC members balked at any limits, Riyadh could have kept up the pressure. Nevertheless, Saudi Arabia needs higher oil prices, and so it will probably move forward with some seasonal maintenance. And in a sign of how desperate it is to boost prices, Saudi Arabia allowed its rival Iran to be exempt from the production limits. Libya and Nigeria will also not be subject to the limits, due to the enormous interruptions suffered in those two countries. Interestingly, Iraq, after years of not being subject to production quotas (back when OPEC followed them), was not included in the exemptions.
The OPEC cuts could potentially be swamped by other sources of output. Russia added 400,000 barrels per day from August to September. Nigeria could bring a few hundred thousand barrels per day back online. Libya has already added nearly 200,000 barrels per day in recent months, and is targeting another 500,000 barrels per day of increased output. And the massive Kashagan oil field in Kazakhstan is set to come online before the end of the year, and could add as much as 370,000 barrels per day in 2017 (although those estimates are debatable). All of those gains have the potential to more than offset the planned cuts from OPEC of about 700,000 barrels per day.
Related: Trudeau Pushes Through LNG Megaproject Despite Environmental Concerns
Moreover, if oil prices rise, it could greenlight new drilling around the world. State-owned companies will be pleased, but so will publically-traded companies large and small. "This gives U.S. producers more confidence,” James West, partner at the investment firm Evercore ISI, told Reuters. “They may become a touch more aggressive than they had planned to be.”
As Ben Winkley of Argus Media noted on Twitter on Thursday, major investment banks are underwhelmed by the OPEC deal:
But, despite the criticism and the numerous obituaries written about OPEC over the past two years, the group is obviously still relevant. Even if the supply cuts are underwhelming, the psychological effect the group has on the markets is still enormous. Oil prices surged more than 6 percent on Wednesday and the share prices of energy producers around the world surged. It remains to be seen if the rally can continue.
By Nick Cunningham of Oilprice.com
http://oilprice.com/Energy/Oil-Prices/How-Long-Will-OPEC-Hot-Air-Continue-To-Fuel-Oil-Prices.html
Goldman Says OPEC Deal May Add Up To $10 To Price Of Oil, Two Days After Cutting Oil Price Target By $7
by Tyler Durden
Sep 29, 2016 7:10 AM
Goldman has done it again. Two days after the central banker-incubator cut its year end price target from $50 to $43, admitting the previously anticipated rebalancing will take longer to achieve, and now expects "a global surplus of 400 kb/d in 4Q16 vs. a 300 kb/d draw previously", and followed the next day by a report in which it said that not even an OPEC deal would stop oil going lower, overnight the very same analyst, just 24 hours after saying the opposite, Goldman's Damien Courvalin said that the OPEC agreement will "likely provide support to prices, at least in the short term" and added that the announced production quota should boost the price of oil by $7/bbl - $10/bbl. Again: this is two days after cutting the 2016 price target by $7, and one day after saying an OPEC deal would have no impact.
Still, trying to avoid looking like a total flip-flopper, Courvalin adds that "at the historical average 4.8% production beat relative to quotas, this target would be 33.7 mb/d, above current production levels. It has historically taken a fall in oil demand to ensure quota compliance, as in that case, production is forced lower by a decline in refinery intake around the world. This is not the case today with resilient demand growth" and said that "we maintain our year-end $43/bbl and 2017 $53/bbl WTI price forecasts given: (1) uncertainty on this proposal until it is ratified, (2) likely quota beats if ratified, (3) potential for production above our cautious forecasts in areas of disruptions (as was the case today in Libya and KRG), and (4) our conservative supply forecasts outside of OPEC for next year."
Then again, the only thing that will be stuck in algos' random access memory is that Goldman now expects oil to rebound by up to $10/bbl, which may explain why oil is now rolling over.
Here is Goldman's full note for those who care:
OPEC buys time
OPEC members agreed to limit output today, although no quotas were formally set. This agreement is the first since the oil bear market started in 2014 and as such will likely provide support to prices, at least in the short term. However, we maintain our year-end $43/bbl and 2017 $53/bbl WTI price forecasts given: (1) uncertainty on this proposal until it is ratified, (2) likely quota beats if ratified, (3) potential for production above our cautious forecasts in areas of disruptions (as was the case today in Libya and KRG), and (4) our conservative supply forecasts outside of OPEC for next year.
OPEC members agreed today in Algiers to reduce production to a range of 32.5 to 33.0 mb/d, down from 33.2 mb/d in August (based on OPEC secondary sources). As of now there are no further details and the agreement is scheduled to be ratified at OPEC’s next official meeting on November 30. This agreement is the first since the oil bear market started in 2014 and as such will likely provide support to prices, at least in the short term. However uncertainty is set to remain high in coming months, with so far no comments from the Saudi minister. Further, the Iraq minister commented that secondary sources for oil production are too low, with his country’s output potentially 300 kb/d higher than such measure implies, a gap of nearly half of the proposed production cut.
If this deal follows the proposal made by Algeria as reported by Bloomberg this morning, it would leave Libya and Nigeria exempt, feature a production target for Saudi Arabia, allow for some growth in Iran and Venezuela and require a 1.6% production cut elsewhere relative to average January-August production levels.
Through 2017, such a proposal would keep production 480 to 980 kb/d on average below our forecast. Strictly implemented in 1H17 and all else constant, the production quotas announced today should be worth $7/bbl to $10/bbl to the oil price. However, at the historical average 4.8% production beat relative to quotas, this target would be 33.7 mb/d, above current production levels. It has historically taken a fall in oil demand to ensure quota compliance, as in that case, production is forced lower by a decline in refinery intake around the world. This is not the case today with resilient demand growth.
We reiterate our year-end $43/bbl and 2017 $53/bbl forecasts given: (1) uncertainty on this proposal until it is ratified especially as it relates to Saudi cuts and Iran caps, (2) likely quota beats if ratified, (3) upside surprises to disrupted production as announced today (Libya, KRG) with potential for more given our cautious forecasts in these countries, and (4) our conservative supply forecasts outside of OPEC for next year. Since we see risks to production from countries not targeted by today’s quota as skewed to the upside, we view a strict implementation of today’s OPEC proposal as normalizing the risks around our projected price path.
Today’s proposal does not impact our expectation for weaker fundamentals in the coming months: (1) the deal does not impact current production as it is scheduled to be finalized at the November 30 meeting, and (2) we learned today that production in Libya/Iraq is currently 180 kb/d above our expectation
Longer term, we remain skeptical on the implementation of the proposed quotas, if ratified. Strict implementation of today’s deal in 2017 would represent 480 to 980 kb/d less output than we forecast. However, our forecasts assume little reversal in the c.1.0 mb/d of short-term disrupted production, with recent data for these countries already putting that forecast at risk. Further, we have remained cautious on the delivery of new projects outside of OPEC next year, with a combined 400 kb/d lower forecast vs. guided deliveries. The net of all these risks is close to zero, on our estimates, instead of skewed to higher production before today’s quota announcement. As a result, we reiterate our $43/bbl year-end forecast as well as our $53/bbl for next year
Our conviction that OPEC production cuts will be ineffective long term is rooted in our view that the flattening of the oil cost curve created by shale will lead to a loss of pricing power by low-cost producers, leaving them with only volume growth to sustain fiscal revenues. As a result, if this proposed cut is strictly enforced and supports prices, we would expect it to prove self defeating medium term with a large drilling response around the world. This is what occurred following the January 1987 OPEC production cut which led to a rebound in non-OPEC onshore rigs before prices sold off again setting the stage for a decade long steady increase in OPEC drilling.
Exhibit 1: No formal proposal has been announced except for a headline production level. The below table illustrates the proposal made by Algeria ahead of the meeting.
Crude oil production (thousand barrels per day)
Exhibit 2: Compliance to quotas is historically poor, especially when oil demand is not weak
OPEC production of countries under quota vs. their production target (lhs); Year-over-year change in global oil demand (rhs). In thousand barrels per day
http://www.zerohedge.com/news/2016-09-29/goldman-says-opec-deal-may-add-10-price-oil-two-days-after-cutting-oil-price-target-
WTI 47.13 +0.08 +0.17%
Why Goldman Sachs Lowered Year-End Oil Forecast to $43 per Barrel
By Sarah Sands | Sep 28, 2016 3:44 pm EDT
Goldman Sachs’s view on crude oil
In the CNBC interview, Jeff Currie, head of commodities research at Goldman Sachs, said his firm has lowered its 2016 year-end target for crude oil (USO) (BNO) from $50 per barrel to $43 per barrel. Currie focused on three parameters that are indicating the crude oil (UCO) (UWTI) movement.
Why Goldman Sachs Lowered Year-End Oil Forecast to $43 per Barrel
Currie said the first thing he’s looking at is US (SPY) (QQQ) crude oil production. The rate of decline in US crude oil production is slowing down, which indicates that production growth will slowly increase.
The second thing Currie is focusing on is capital expenditures for oil and gas exploration companies in the last decade. Some companies had huge capital expenditures in the last decade, and now they’re trying to make their production facilities more operational. This change will also increase crude oil production.
The third thing Currie is focused on is the so-called new oil era in which major oil producers of OPEC (Organization of the Petroleum Exporting Countries) and Russia aren’t ready for production freezes. There’s no proper coordination among OPEC members, and major exporters such as Saudi Arabia aren’t ready for production freeze talks.
Crude oil and the movement of the dollar
Between September 2007 and April 2013, crude oil had a negative correlation with the US Dollar Index (UUP). This correlation indicates that the crude oil movement was inversely related to the US Dollar Index. However, from April 2013 to date, the one-month correlations between crude oil and the US Dollar Index have been both positive and negative. This is mainly due to some fundamental factors such as OPEC’s production freeze discussions, US inventory data, and any major oil producer’s decision. To learn more, read Why Is Oil Moving Independent of the Dollar?
In the next part of this series, we’ll analyze Jim Grant’s view on gold and central banks.
http://marketrealist.com/2016/09/goldman-sachs-lowered-year-end-oil-forecast-43-barrel-heres/?utm_source=yahoo&utm_medium=feed
Hopes For Output Freeze Dwindle As Iran Refuses Saudi Offer To Cap Production
By Irina Slav - Sep 28, 2016, 9:29 AM CDT
Bijan Zanganeh Iran
Unless a miracle happens, there is zero chance of OPEC and Russia agreeing an oil output freeze in Algiers, after Iran refused to take Saudi Arabia up on its offer of cutting current output if Tehran agreed to cap its own.
Iran’s Oil Minister Bijan Zanganeh was quoted by Reuters yesterday as saying that the meting was “not the time for decision-making”, although he did leave a door open for a later agreement, in November, when OPEC will meet in Vienna.
The bone of contention seems to be Iran’s ambition to ramp up its daily oil output to above 4 million bpd, while Saudi Arabia and the other Gulf producers would rather Tehran stopped at the present rate of 3.6 million barrels.
According to analysts, the long-standing rivalry between Iran and Saudi Arabia is the deal-breaker. Iran has said repeatedly that it was eager to go back to its daily oil production rates from pre-sanction times. Saudi Arabia, on the other hand, has made a major concession in offering Tehran to not just freeze, but actually reduce its output, and it’s unlikely it will be willing to make any further concessions.
Truth be told, analysts and market observers were skeptical about a production freeze agreement from the start, although it’s clear that OPEC is in a tight corner, with prices remaining in the US$40-50 range and a lot of members – not just Venezuela and Nigeria – finding it increasingly hard to cope at this price level.
Then there is the Russian factor to consider. Moscow was the country that initiated the Doha talks about a freeze earlier this year, but as those failed, it’s not at all certain the world’s top producer—at least for now—will be as willing as government officials say they will to cut its own production to join efforts for a market rebalance.
By Irina Slav for Oilprice.com
http://oilprice.com/Energy/Energy-General/Hopes-For-Output-Freeze-Dwindle-As-Iran-Refuses-Saudi-Offer-To-Cap-Production.html
Amid freeze talks, Russia expects more oil production
Rosneft said it could increase production from the Far East next year by as much as 20 percent.
By Daniel J. Graeber Follow @dan_graeber Contact the Author
Sept. 28, 2016 at 8:58 AM
Russia says it could get more oil out of a Far East field next year, even as ministers meet to review the prospects of holding output steady. Photo by Heather Snow/Shutterstock
MOSCOW, Sept. 28 (UPI) -- An official at Russian oil company Rosneft said oil production from a field in the Far East could increase by as much as 20 percent next year.
According to Russian news agency Tass, Rosneft aims to increase crude oil production at the Sakhalin operation by as much as 20 percent to around 3 million barrels. As much as $2 billion in investments, meanwhile, would go toward Rosneft's operations in the Far East.
Production for the second quarter for Rosneft was 4.1 million barrels of oil per day, an increase of 0.5 percent from the previous period. Total hydrocarbon production was up 0.2 percent from the first quarter and 0.7 percent year-on-year.
The company credited the increase in production to an intensified drilling program, which was up 16 percent from the first quarter. The total footage of development drilling increased 48 percent from last year during the first half of 2016.
One of the top producers of crude oil in the world, the Russian company in June reported its net profit of about $224 million was off 75 percent from last year. The company attributed lingering weakness in crude oil prices, tax pressures and an increase in overall investments for triggering the decline.
The touted increase from Sakhalin comes at a time when ministers from major oil-producing nations like Russia meet on the sidelines of an international energy conference in Algeria to discuss extraordinary measures to support higher crude oil prices.
Crude oil prices dropped from $100 per barrel in 2014 to below $30 per barrel early this year as supply far outweighed demand in a global economy struggling to leave the last recession behind. Oil prices this year moved briefly above the $50 mark on expectations of an emerging balance between supply and demand. Those expectations, however, have yet to materialize.
Speaking from Algeria early this week, Russian Energy Minister Alexander Novak said it wasn't essential to push for artificial measures as the market would take care of itself.
Novak last week said ministers could consider an option to keep production rates steady for the next three to six months, but there are no offers on the table to actually cut production.
http://www.upi.com/Amid-freeze-talks-Russia-expects-more-oil-production/9001475063767/
Saudis Raise Fees to Offset Less Oil Income
DUBAI—Saudi Arabia, faced with dwindling oil income, sharply increased government fees such as visa charges as part of a range of measures aimed at raising revenue from sources other than oil.
Under the new rules, foreigners will have to pay $800 for a six-month visa, six times the current cost. The government also announced hefty fines for traffic violations. It also more than tripled the fees it charges to advertise on billboards.
In an era of cheap energy prices, Riyadh is pushing to overhaul its oil-dependent economy by asking its citizens as well as foreigners to do more to help fill state coffers.
The visa-fee increases, which come into force in October, will mostly affect foreigners who travel to the kingdom for work.
—Margherita Stancati
9/11 Bill Crashes Saudi Stock Exchange, Bond Market Ambitions
By Nick Cunningham - Sep 28, 2016, 4:04 PM CDT
Riyadh
With oil prices continuing to languish below $50 per barrel, the major oil producers in the Middle East are seeing their financial positions deteriorate. To plug the gap in the government budgets, the Gulf States are having to turn to the international bond markets.
Saudi Arabia plans on taking out $10 billion to $15 billion in debt from international financial markets, but a controversial piece of legislation passed by the U.S. Congress could complicate Saudi Arabia’s plans. Congress passed a bill that would allow the victims of the September 11, 2001 attacks to sue Saudi Arabia for its potential involvement. President Obama opposes the legislation for fear of damaging America’s relationship with Saudi Arabia, but the U.S. Senate, with huge levels of support, overrode the president’s veto.
The issue is rattling confidence in a crucial strategic and economic alliance between the U.S. and Saudi Arabia. Riyadh has threatened to sell off U.S. treasuries if the bill moves forward. As the veto override vote has worked its way through the Senate, Saudi Arabia’s currency plunged to its lowest level in four months, and its stock market “lost the most in the world for a second straight day,” Bloomberg reported. Bloomberg follows 90 stock indices, and Saudi Arabia’s Tadawal All Share Index was the worst performer in recent days, falling to its lowest point since the beginning of this year (a time when oil prices dropped to below $30 per barrel). This could complicate or delay Saudi Arabia’s bond sale, sources told Bloomberg.
The 9/11 bill could interrupt Saudi Arabia’s plans for a bond offering, but it probably won’t derail the effort. The potential rift between the Washington and Riyadh probably won’t be a deal-breaker for Saudi Arabia’s plans for new debt issuance. “It is simply a matter of when, not if, Saudi Arabia decides to tap the international debt capital markets," Chavan Bhogaita, head of market insight and strategy at National Bank of Abu Dhabi PJSC, told Bloomberg. “This doesn’t change the fact that Saudi Arabia needs to raise a substantial amount of cash through the bond markets.”
Related: The Inevitable Winners Of The OPEC Meeting
The 9/11 bill is likely more of a political than an economic headache, but it comes on top of Saudi Arabia’s worrying financial troubles. Its fiscal deficit reached 16 percent of GDP in 2015, the worst figure among the world’s top 20 economies. And despite austerity measures, the gap will only narrow to 13.5 percent of GDP this year. The financial squeeze has already forced Saudi Arabia to burn through roughly $150 billion in financial reserves since 2014. In May, Moody’s Investors Service downgraded Saudi debt to A1, two levels below Abu Dhabi and Qatar. The oil kingdom can continue to use up reserves for a few years, but with the oil markets heading on a “lower for longer” trajectory once again, Riyadh is starting to get a bit nervous.
The Saudi government is in the midst of a major economic transformation plan, introducing new taxes and cutting public spending in an effort to correct the fiscal imbalance. The IMF applauded the reforms last month, suggesting the country’s financial position was improving. But persistently low oil prices means the squeeze continues. A few days ago the government cut ministers’ salaries by 20 percent.
Related: BP Faces Another Setback In Plans To Drill Pristine Australian Coast
In a sign of how acute the economic problems have become for Saudi Arabia, it appears that the Saudis have been the most aggressive in pushing for a production freeze between OPEC and Russia in Algiers this week. Over the past two years, more financially-strapped countries such as Venezuela and Iran have been the ones eager for market intervention to boost oil prices, while the Saudis have been content to let the market sort everything out, pushing high-cost producers out of business. But the tables have turned, as Javier Blas of Bloomberg noted this week. Now, Iran, fresh off of international sanctions and a huge increase in oil production, sees no need to limit its output. Saudi Arabia, on the other hand, has floated several proposals, a sign of how eager it is to see oil prices rebound.
Whether or not oil prices do rebound in the short-term, the need for more resources has Saudi Arabia turning to the bond markets for the first time, with a bond sale tentatively slated for October. It remains to be seen whether or not the 9/11 bill threatens the offering.
By Nick Cunningham of Oilprice.com
http://oilprice.com/Energy/Energy-General/911-Bill-Crashes-Saudi-Stock-Exchange-Bond-Market-Ambitions.html
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Why China is the oil ‘wild card’ that could overrule any OPEC moves
By Sara Sjolin
Published: Sept 27, 2016 11:57 a.m. ET
China’s secret stockpiles could cap any oil rally, analyst says
Reuters
Qingdao - one of China’s big oil-importing ports
All eyes are on the informal OPEC meeting in Algiers this week, but any efforts by the cartel to boost oil prices could easily be quashed by an unexpected player in the energy market: China.
Taking advantage of the slump in oil prices CLX6, -3.51% LCOZ6, -3.51% , the country has in recent years aggressively accelerated its buildup of strategic petroleum reserves, giving it a strong tool to cap a rally in oil prices, energy experts said.
“Regardless of what happens on the supply side, there’s this wild card factor of the strategic petroleum reserves,” said Jodie Gunzberg, global head of commodities and real assets at S&P Dow Jones Indices, at an event in London on Tuesday.
“If OPEC does freeze production and tries to bring the price back up, China may choose not to buy oil at the higher price and just use its reserves,” she added. “Or even more dramatically, they could start exporting themselves, like they did with other commodities.”
Read: OPEC to discuss cutting oil output by 1 million barrels a day
In the first scenario, global demand for oil would fall, which could halt a potential OPEC-fueled price recovery. And in the second scenario, supply would rise and offset any cut or freeze agreed by other producers.
In any case, the stockpiles essentially mean China has created an emergency brake to pull if prices rise too fast to their liking. And that’s creating a big risk to energy markets, Gunzberg said.
“It’s this unknown that could keep the oil prices down for much longer than we might currently expect,” she said. “It’s much, much harder to make a case to the upside than the downside in the oil market right now.”
“We’ve seen China do this with other commodities. We’ve seen it in cotton, we’ve seen it with nickel, we’ve seen it with other industrial metals. Anything that’s easy to store, China seems to buy up, whenever it’s cheap,” she added.
Read: Rogoff warns ‘hard landing’ in China poses biggest threat to global economy
The secret stockpiles
China is very secretive about the size of its strategic reserves or for how long it would be able to meet domestic demand without any imports. The country finished building the first phase of its buildup program in 2009, with four sites that hold the capacity of 91 million barrels in total, according to reports. A second phase will be finished in 2020, with a reported capacity of around 245 million barrels.
“It never suits any buyer, or bulk buyer, to flag to the market how much they want to buy so we’re likely to get a lot of misinformation around that for quite some time to come. SPRs are strategic, as the name suggests, so the government isn’t going to talk about it,” said Dave Ernsberger, global head of oil content at S&P Global Platts.
“India is also building a fairly large SPR. They just began filling it this year, so that’ll be a factor in the market as well. Those countries that are looking to ultimately build reserves, they cover about 30-50 days of demand,” he added.
China’s oil imports jumped to about 7.77 million barrels a day, the fastest pace since April, but it’s unclear how much was for consumption or how much ended up in stockpiles.
Goldman Sachs on Tuesday also provided a downbeat outlook on the oil, dramatically cutting its fourth-quarter forecast for West Texas Intermediate crude oil. The Wall Street bank now sees crude falling to $43 a barrel, down from $50 expected previously, regardless of the outcome of the Algiers meeting.
“While a potential deal could support prices in the short term, we find that the potential for less disruptions and still relatively high net long speculative positioning leave risks skewed to the downside into year-end,” the analysts said.
Crude oil was down 3.6% at $44.28 a barrel on Tuesday, while Brent slumped 3.6% to $46.23.
http://www.marketwatch.com/story/why-china-is-the-wild-card-that-could-overrule-any-opec-moves-2016-09-27?mod=MW_video_top_stories
DWTI 85.05 pre-market right now
WTI 44.69 -1.24 -2.70%
Goldman cuts Q4 WTI oil forecast to $43 a barrel from $50
By Sara Sjolin
Published: Sept 27, 2016 6:58 a.m. ET
Goldman Sachs on Tuesday dramatically slashed its oil forecast for the rest of 2016, warning that supplies will continue to outstrip demand regardless of what happens at an oil-producers meeting in Algiers this week. The analysts, led by Damien Courvalin and Jeffrey Currie, lowered their crude oil CLX6, -2.53% forecast for the fourth quarter to $43 a barrel from $50 previously. The downgrade comes as major oil producers are gathering for an informal meeting, with all eyes on whether OPEC and non-OPEC members will agree on a production deal. "While a potential deal could support prices in the short term, we find that the potential for less disruptions and still relatively high net long speculative positioning leave risks skewed to the downside into year-end," the analysts said. Goldman Sachs expects a ramp up in production from countries such as Kazakhstan, Russia and Canada. "With our demand outlook unchanged, with year-on-year growth of 1.4 mb/d, this leaves us now forecasting that inventories will build in 4Q16 by 400 kb/d vs. our prior expectation for a 300 kb/d draw during the quarter," GS said.
http://www.marketwatch.com/story/goldman-cuts-q4-wti-oil-forecast-to-43-a-barrel-from-50-2016-09-27