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High Drama In Crude As Oil Explodes Higher On Production Cut News, While Qatar Bids OPEC Adieu

Are you not entertained?

Suffice to say market participants are not waiting around on the official result from the OPEC meeting in Vienna this week to bid up crude after the worst month in a decade.

As noted last week and reiterated on Sunday evening, many observers believe the outcome of the meeting was actually decided in Argentina over the weekend when Crown Prince Mohammed and Putin chatted. Clearly, the mood was jovial.

 

Putin of course said he and bin Salman agreed to extend their cooperation aimed at managing crude prices, and while there’s no “official” word from Moscow and Riyadh yet, the irony is that it’s not clear it can get any more “official” than Putin and Prince Mohammed.

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Meanwhile, Alberta has seen enough. The province is slashing production by 325k b/d as Canada joins in what looks like it will be a synchronized, semi-global effort to arrest the price slide. Alberta Premier Rachel Notley said this:

Every Albertan owns the energy resources in the ground, and we have a duty to defend those resources. Right now, they’re being sold for pennies on the dollar. We must act immediately, and we must do it together.

Any questions? Western Canadian Select’s discount to WTI fell to a record low of ~$50 in October.

Canada

(Bloomberg) 

Between the Alberta news and the soundbites emanating from the Putin/Bin Salman pow wow, crude surged the most since June on Monday.

OilSurge

(Bloomberg)

But wait, there’s more!

Qatar is quitting OPEC, ostensibly to focus on LNG, but it’s obviously not a coincidence that the news (delivered on Monday by Energy Minister Saad Sherida Al-Kaabi) comes 18 months after a Saudi-led coalition instituted an economic blockade of the sheikdom. That episode was the very definition of absurd. Riyadh cited Doha’s support of Sunni extremists, which is all kinds of ironic given that the ideology espoused by al-Qaeda and ISIS is institutionalized in the Saudi monarchy.

In reality, the rift stemmed from Doha’s desire to pursue an independent foreign policy, where that means maintaining at least somewhat cordial ties with Tehran. There’s also a highly amusing backstory about Qasem Soleimani, Kata’ib Hezbollah and a kidnapped falconry party.

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Whatever the case, this isn’t great news for what it says about cartel cohesiveness amid political upheaval. Generally speaking, even war hasn’t been enough to fracture the cartel, but it looks like the stability of the alliance will be tested anew, especially in light of Iran’s reservations about the relative merits of allowing Donald Trump to dictate outcomes from his Twitter account.

On Monday, though, oil was undaunted, as the specter of output cuts and an apparent strengthening of ties between the Saudis and the Russians combined with optimism around trade and a weaker dollar to trigger a monumental rally.

And not a moment too soon after last month’s epic collapse.


 

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