Well, it’s Sunday and that means there’s a cartel meeting going on.
I’ll fill you in on the details once we break for lunch.
Meanwhile, OPEC and rival oil producers are meeting in Kuwait to review progress on the production cut deal that pushed crude up in early December and created a renaissance-like atmosphere around a beleaguered US shale complex that was left for dead a couple of years ago.
I’ve been skeptical about the production cut agreement from the word “go”. First of all, it wasn’t a “cut” to start with. You can’t really call something a production “cut” if the folks involved lifted production in anticipation of the deal. Because then you’re “cutting” from an artificially high baseline. Recall what Bloomberg wrote a while back citing Citi:
OPEC and its partners probably need to prolong production cuts simply to counteract the glut they created just prior to the deal, according to Citigroup Inc.
The Organization of Petroleum Exporting Countries and allies including Russia don’t need to cut output much further to rebalance world markets, Citigroup’s Ed Morse said. However, they’ll likely need to keep output low once the accord expires in June in order to clear supplies added while negotiating the deal last year, he said. Producers will decide in May whether to prolong their agreement.
“The OPEC cut ironically added a million barrels a day of oil to the market” because producers ramped up before the deal took effect, Morse said in a Bloomberg television interview with Francine Lacqua and Tom Keene. “One of the ironic aspects of that two-month period when they all over-produced is that” it means the supply deal “probably needs to be extended.”
So there’s that. And then there’s US operators who have apparently decided that $50/bbl is just as good as $90/bbl when it comes to ramping up production. Now we’ve got record US stockpiles…
…a rig count that’s the highest its been since September 2015 (and projected to go much higher)…
…HY spreads acting like oil is at $90…
…E&P spreads compressing massively off their wides…
… CCC E&P issuance picking up (how’s this for a sign of the times?)…
…IPOs from companies with tickers like “FRAC” and “PUMP” (both of which have gone great for investors)…
…and you know, just on and f*cking on.
Earlier this month, the decidedly bearish fundamental backdrop (finally) caught up to crude, which collapsed something on the order of 9% during CERAweek triggering a near record exodus from HY and causing spreads to blow out:
So that’s the backdrop against which Sunday’s OPEC meeting in Kuwait was set. Here are the headlines so far:
KUWAIT OIL MINISTER OPEC COMPLIANCE IN FEB BETTER THAN JAN
KUWAIT: WE ARE ASKING COUNTRIES TO INCREASE COMPLIANCE
IRAQ PRODUCED 4.312M B/D OF OIL IN MARCH: MINISTER
RUSSIA’S ENERGY MINISTER: MINISTERS DISCUSS EXTENDING CUTS DEAL
IRAQ’S MARCH OIL EXPORTS IN AGREED RANGE: MINISTER
IRAQ CUT OIL OUTPUT BY 185M B/D UNDER OPEC DEAL: LUAIBI
IRAQ TO CUT 210K B/D OF OIL OUTPUT IN FEW DAYS: LUAIBI
KUWAIT: WE SHOULD SEE MARKET REBALANCE END OF YEAR
KUWAIT: WE SHOULD SEE OIL STOCKS DRAWDOWN IN 3Q
RUSSIA’S NOVAK: OPEC/NON OPEC COMPLIANCE 94% AS OF END OF FEB
CORRECT: IRAQ CUT OIL OUTPUT BY 187K B/D UNDER OPEC DEAL
OPEC CHIEF SEES MARKET REBALANCE IN SECOND HALF OF 2017
OPEC: PRODUCERS REACHED HIGH LEVEL OF COMPLIANCE WITH CUTS
OPEC HOPES FOR HIGHER LEVEL OF COMPLIANCE WITH OUTPUT CUTS
OPEC CHIEF: TOO EARLY TO DECIDE ON EXTENSION OF OIL CUTS DEAL
OMAN OIL MINISTER SAYS MAKES SENSE TO EXTEND OUTPUT CUTS 6 MOS
IRAQ TO SUPPORT EXTENDING OIL CUTS IF OTHERS IN OPEC AGREE
BARKINDO: OPEC TO DECIDE ON EXTENSION OF OIL CUTS DEAL IN MAY
OMAN SUPPORTS OIL OUTPUT CUTS UNTIL END OF YEAR: MINISTER
VENEZUELA OIL MIN: WE ARE READY TO BACK EXTENDING OUPTUT CUTS
KUWAIT OIL MINISTER: INDUSTRY NEEDS TO ADDRESS CHALLENGES
KUWAIT: SAUDI ARABIA, ANGOLA EXCEEDED COMMITMENTS TO CUT OUTPUT
KUWAIT: OIL MARKET WILL BE IN BALANCE IN 3Q IF COMPLIANCE 100%
OPEC CHIEF: OIL MARKET OPTIMISM IMPROVED ON OUTPUT CUTS
OPEC: OIL STOCKS ARE HIGH ON LOW U.S. DEMAND, RISING SUPPLY
OPEC: OIL STOCKS TO DECREASE IN SECOND HALF OF THIS YEAR
KUWAIT: OIL COMMITEE REPORTS HIGH LEVEL OF CONFORMITY
KUWAIT: OPEC IS STUDYING EXTENSION OF CUTS DEAL FOR SIX MONTHS
KUWAIT MINISTER: OPEC, NON-OPEC COMPLIANCE WITH CUTS IS AT 94%
KUWAIT: COMMITTEE CALLS FOR OPEC TO MAKE RECOMMENDATION ON CUTS
RUSSIA’S NOVAK: OPEC, NON-OPEC DISCUSS EXTENDING OIL-CUTS DEAL
RUSSIA: OPEC, NON-OPEC COOPERATING AT `VERY HIGH LEVEL’
And the one that “matters”:
OPEC, NON-OPEC COMMITTEE SAID TO RECOMMEND OIL-CUTS EXTENSION
So there it is. A reason for crude to rally this week. Or a reason for crude to plunge this week as soon as the Saudis say something to contradict all of the above. And of course they’ll be API and EIA prints that will invariably trigger the ubiquitous BTFD oil algo.
At the end of the day, I’m not 100% sure that even 100% compliance matters here. The supply/demand picture is still looking rather supply-ish at this juncture. And despite cat calls from the likes of Fitch (who downgraded Saudi Arabia last week) and from the peanut gallery whose inhabitants don’t seem to understand that when you can tap debt markets for $17.5 billion (and when that offering was massively oversubscribed) it really doesn’t make too much difference if the fiscal outlook deteriorates a bit in the short-term. Besides, have a look at these debt-to-GDP numbers for the kingdom and compare them to your favorite developed market:
Trade accordingly.
