And now Russia says they won't sign on to any more cuts.
The OPEC deal is in crisis. All oil price gains derived from the 1.2 million-barrel cut’s initial announcement and implementation have been wiped out, and No. 1 OPEC producer Saudi Arabia’s attempt to draw down American inventories has fallen flat, due in part to insubordination from the No. 2 producer, Iraq, along with upticks in production from Nigeria, Libya, and U.S. shale.
The KSA had a clear opportunity to drastically change the direction of oil prices last month, when the Organization of Petroleum Exporting Countries (OPEC) met in Vienna to discuss the duration and scope of the output cut extension. Though Riyadh agreed to continue the deal three months longer than analysts expected (the new deal ends in March 2018, as opposed to December 2017 as many expected), the bloc leader did not heed recommendations to deepen the cuts, keeping production at 32.5 million bpd.
In addition, Nigeria and Libya got a pass that allows them to produce as much as they can for the next nine months, despite the African duo’s booming recovery worth hundreds of thousands of barrels.
In April and May, Saudi Arabia cut exports despite the fact that the OPEC deal does not limit export volumes. But new ClipperData says that June numbers could reveal a reversal in that downward trend, as KSA appears ready to ship more oil.
The royal family – especially newly crowned heir to the throne Mohammed bin Salman – needs oil prices near $60 for Saudi Aramco’s 2018 IPO to generate the income it needs. At the time of this article’s writing, Brent was trading up at $47.78.
One month after OPEC’s failure to toughen production quotas, the bloc remains uncertain about deeper cuts. Reuters reported on Tuesday that the monitoring committee for the deal, plus Saudi Arabia and Russia, would officially discuss the deal’s progress next at the end of July. That’s an extra two months of market standstill.
Is Saudi Arabia Waiting For $60 Oil?
The IPO isn’t moving along as quickly as originally planned. Riyadh’s financial planners are behind in preparing Aramco and world markets for what is expected to be the largest IPO in history. The team was supposed to reach a decision on a foreign bourse for the listing by the end of Ramadan, but Eid-ul-Fitr passed days ago, and the victor has yet to be named—just murmurs that Bin Salman is at odds with top planners who prefer London over New York.
And while the Saudis may not be deliberately procrastinating on the listing, holding out for higher oil prices, the current low oil prices certainly aren’t rushing things along.
Realistically, no stock exchange other than New York or London had a fair chance at winning the Aramco listing. The United Kingdom had presented plans to bend its listing rules to accommodate the state oil company on more favorable terms, but British fund managers find the obvious kowtowing to Saudi oil wealth to be obscene. New York would connect Riyadh to the steepest pool of international funds, but an ongoing class action lawsuit against Saudi Arabia pursuant to the controversial Justice Against State Sponsors of Terrorism Act could expose Aramco and its liquid assets to litigation....MORE