You know, I’ve gotta think that people may be underestimating the extent to which the drama between Qatar and Saudi Arabia might eventually end up impacting the OPEC production cuts.
Markets seem to vaguely understand the possibility that the rift could have implications for the deal, but it doesn’t look priced in to me.
To be sure, that’s not based on any kind of deep-dive analysis and really, I don’t even have a back-of-the-envelope calculation to support my contention. But if you kinda just think about it from the perspective of Iran’s position and the fact that Tehran and Doha are now cozier than ever, it makes you wonder whether the deal could eventually be jeopardized.
Some people have noticed. “While we would not want to read too much into this in terms of looming trouble for OPEC, the fact that Qatar’s stance towards Iran is a key element in this issue does make for a potentially more complicated setup at future meetings should the issue not have been resolved in due time,” JBC Energy analysts said in a note out earlier this week.
Well with that as the backdrop, do note that crude is plunging following this morning’s EIA data:
- Crude +3,295k Bbl, Median Est. -3,250k Bbl
- Cushing crude -1,444k
- PADD 3 crude +3,398k
- Gasoline +3,324k vs est. -50k
- PADD 1B gasoline -773k
- Distillates +4,355k vs est. +650k
- PADD 1 Distillates +341k
- Refinery utilization -0.9 ppt vs est. -0.2 ppt
- Refinery crude inputs -283k b/d
- Crude imports +356k b/d
- Crude production -24k b/d
Those highlighted bits are obviously a fucking disaster for the bulls, which is why this chart looks like it does:
Whatever the case, I’m not entirely sure this is a great time to be aggressively long crude.
For those interested, here’s some useful color and history via Bloomberg:
“There are no signs of any disruption to the OPEC and non-OPEC deal,” said John Sfakianakis, a Riyadh-based director of research at Gulf Research Center. “It is not only in the GCC’s national energy interest but also it is in Russia’s national interest to see the OPEC deal sustained as everyone needs higher oil prices and a stable market.”
Here are some examples of OPEC’s ability to keep working despite conflict:
- 1980s — Iran and Iraq waged an eight-year war that disrupted production in both members, yet OPEC still managed to set its first-ever output quotas in 1983.
- 1990 — After Iraq invaded Kuwait on Aug. 2, the combined production of both countries — 4.3 million barrels a day — was halted, according to the Energy Information Administration. OPEC continued to meet through the conflict.
- 2011 — Syria’s civil war intensified tensions between Saudi Arabia and Iran, with Iran supporting the regime of Bashar Al-Assad while Saudi and other Sunni-led members backed rebels seeking to topple him. OPEC agreed a new collective production ceiling in December of that year.
- 2015 — Yemen’s civil war deepens the divide, with Saudi Arabia accusing Iran of backing rebel factions. Despite the friction, the group settled on its first production cut in eight years in November 2016.
