There should be a national minute’s applause for the oil analysts. No matter how wrong they are -- and they’re always wrong, year after year after year -- oil analysts still find the strength each morning to go through the motions of setting new forecasts. And though punching numbers into Excel might not be classed as essential work, their pertinacity in these hamster-wheel times of ours is truly an inspiration. Give them a big clap.
“Historic yet insufficient” is how Goldman Sachs describes the OPEC+ agreement to cut production by a record big 9.7m barrels a day from May 1. “Bold but probably doomed” is Panmure Gordon’s take. JPMorgan goes with “a really futile gesture”. “Not enough to offset 20-30mbd demand crash” says SocGen. Back to Goldman:
Taking into account updated core-OPEC production guidance from April, this headline deal represents a 12.4mb/d cut from claimed April OPEC+ production but only a 7.2mb/d cut from 1Q20 average production levels. Given the difficulty for most producers outside of core-OPEC to implement large cuts, this agreement leaves voluntary cuts as still too little and too late to avoid breaching storage capacity, ensuring that low oil prices force all producers to contribute to the market rebalancing.We should also note this guy, who’s doing his thing:
A reminder that Donald Trump, who despite everything remains The Actual President of the United States, tweeted on April 2 that a deal to end the oil price war was imminent and that the Saudis and Russia were discussing a cut of 10mb or even 15mb (after being threatened with tariffs). Even through the actual Opec cut is slightly less, the fact that his team appear to have have engineered a coup on the cartel is nevertheless a positive for TAPOTUS’s re-election campaign. Here’s Alphavalue:....MUCH, MUCH MORE
The relevant fact stemming from the G20 meeting is IEA’s intention to buy up to 2mbpd of crude to fill strategic reserves (although this has not been officially announced yet). Non-OPEC+ producers (i.e. Canada, Norway, Brazil and the US) say their production will go down by 3.5mbpd this year, as a result of lower oil prices, but will not impose production quotas. This demonstrates, in our view, the US’s dominant position over Saudi Arabia and Russia. This was indeed quite a show of prowess by the US to stop a price war in a month, only through the threat of oil tariffs and without a direct contribution from the largest producer. As the US is less dependent on oil supply, protecting shale producers has become a national interest.This mega-cut is welcomed for the spot market, as the storage constraint alleviates. Taking the assumption of a 20mbpd impact on demand for March and April, the 15mbpd supply gap seen in Q1 is expected to go below 8mbpd in Q2. This justifies the current price level, which will remain below break-even in the US for existing production with supply above demand.The cut runs until 2022, which should be seen as some kind of insurance that OPEC+ is committed to balancing the market if the COVID-19 pandemic lasts longer than expected. Yet, renegotiations and low compliance levels are bound to happen with a recovery. Saudi Aramco has increased its official selling price everywhere except in Asia, where demand is recovering. This shows that the fight for market share is not over and could restart after the lockdown.And SEB’s Bjarne Schieldrop:...
Does anyone else juxtapose the Financial Times journalist's name with SEB and come up with the St. Brice's Day massacre of the Danes by Æthelred the Unready and the boys?
Anyone?
No?
