Tag Archives: Opec

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No cheers from Algiers: oil price set for more volatility

Mike van Dulken, head of research at Accendo Markets, tells Hot Commodity why Algiers was fruitless and what we can expect next from the oil market…

It seems, as expected, nothing will come from an over-hyped Opec-led oil production freeze meeting in Algiers. Except for providing lots of quotes to fill the airwaves and fuelling oil price volatility, that most would have happily forgone.

I’m not sure how markets developed any optimism whatsoever that an agreement would be made, given the poor track record at meetings so far this year. We now likely have to wait for the official Opec meeting in Vienna at the end of November for something more concrete in terms of concerted efforts to stabilise the global oil market, buoying prices in the face of a global supply glut. However, having everybody (Opec and Russia) in the same room and on the same page is a good start. As is some welcome, even surprise flexibility from the Saudis.

The build-up to today’s finale has been as fun as ever, with plenty of inflammatory and contradictory comment almost making a mockery of the event and the major parties involved. Deals and solutions were allegedly plentiful only to result in little. Iran is the linchpin – stubborn as ever. But rightfully so, in our view, preferring to ramp up production from 3.6m/bpd to its goal of 4m. A distinct lack of urgency on its part to find compromise with struggling Opec peers suggests it is nowhere near as desperate to help stabilise prices. It clearly sees more upside in selling 10 per cent additional production at $46-50/barrel than selling its current output at $50+. How so? After years of sanctions, being able to sell any oil at all is a bonus. And if peers do capitulate and cut production, it will only help Iran in its quest to retake market share. Where’s its incentive to play ball before it gets back to pumping at full pelt? Let the others move first.

This makes sense, with Iran’s public finances far less exposed to the oil industry than Opec mouthpiece Saudi Arabia. The latter was, to nobody’s surprise, the most frustratingly but unproductively vocal this week. It helped the oil price rally with talk of a deal offered to Iran (“if you freeze, we’ll cut”) only for the gains to be swiftly eroded by Iran’s flat refusal. This suggests, even confirms, that the Saudis are in a much more perilous position financially, needing a production freeze/cut deal soon. It’s no surprise, with a skyrocketing budget deficit of $100bn, that it’s mulling a Saudi Aramco IPO and selling government debt to ease the burden of lower oil prices on public spending plans inked when oil was closer to $100/barrel. It is set to meet Russia again next month; prepare for plenty more market-moving rhetoric.

This week’s meeting may not have delivered that much, but will hopefully prove a stepping stone on the way to more stable oil prices. The stream of disagreement between all parties involve, however, remains a wide one to cross. What’s the chance that November’s Opec meeting is yet another damp squib, forcing us to look to 2017 and contemplate déjà vu all over again?

This commentary was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.

Oil price: don’t expect much from Algiers

Mike van Dulken, head of research at Accendo Markets, tells Hot Commodity why the oil majors’ meeting in Algiers is unlikely to bring resolution to the production impasse…

The price of a barrel of brent crude oil sits at the mid-point of a tight $45.5-$50/barrel September range, one which has already closed in from a wider $42-$53 from April through to mid-August. Investors are pausing for thought, price activity narrowing as they await the outcome of an informal Opec-led meeting on the sidelines of the International Energy Forum in Algiers, Algeria on 26-28 September. It is here that we hope to finally hear some real progress regarding an agreement between major oil-producing nations to curb excessive output, stabilise the market and solve the global supply glut. This would likely help the oil price rally quite significantly.

We have been here before though, if you cast your mind back to April in Doha. The risk is we simply end up with yet another unanimous agreement that a freeze is necessary but which nobody is willing to implement, because they don’t trust fellow attendees to honour the promise and/or because they can’t afford to cap production themselves. With oil prices down at $45 versus the $100+ they traded at when times were good, most oil-reliant nations are hurting badly – Opec mouthpiece Saudi Arabia included. The latter has resorted to selling bonds and is prepping for a future IPO of state oil company Saudi Aramco. A painful adjustment is becoming increasingly necessary within the group to rebalance previously oil-funded public finances with much lower oil receipts.

Conflicting comments from oil ministers as the meeting approaches does little to inspire confidence. The Saudis, Iranians and Russians are keeping us entertained. Buy the build-up, sell the meeting has proved the correct strategy so far this year.

While a failed meeting risks sending oil prices lower, a host of drivers are, nonetheless, keeping prices from falling markedly: the buck-denominated commodity is buoyed by expectations of a delay to US Fed rate rises, something we don’t see happening until March next year at the earliest; the energy commodity remains in recovery mode with technicals still showing supportive rising lows around $45 since the very depressed 12/13 year lows (<$28) in January; global growth has not collapsed, even if remains sluggish to say the very least; there is no sign yet of a Chinese hard landing (big oil consumer). Also, monetary stimulus/accommodating policy remains in abundance from all the major central banks; geopolitical instability in the Middle East remains ever-present; and US oil inventories continue to oscillate around breakeven, never straying too far (last week’s aberration drawdown was due to a storm). As with the Fed and its rate rises, I struggle to see how we can get a unanimous agreement to freeze production or respect caveats this month, which means prices are highly likely to correct. But I also expect the build-up to generate much excitement and a price rally beforehand, meaning the ensuing correction merely retraces the up-move and doesn’t do too much damage. After all it’s in every participants' interest to talk up the price, but in nobody’s interest to see it break the 2016 recovery uptrend. Expect lots of chat and media comment for something that will likely amount to nothing more than another round of tea and biscuits and agreeing to disagree by the great and good (and bad) of the oil world. This commentary was produced exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.

The oil price recovery is unlikely to last

This week, Mike van Dulken from Accendo Markets tells Hot Commodity why hopes of a continued oil price recovery are premature…

There has been much talk about the remarkable recovery in the price of oil to $41/barrel and whether it is sustainable. After 50 per cent gains since January’s 13-year lows are we set to push on or retrace? Debate continues as to whether Opec and Russia can cobble together some sort of production freeze agreement. Not in our opinion. Not while Iran and Iraq are in full recovery mode. Can anyone trust anyone, given the hole they have dug themselves in the fight with US newcomers for market share?

This keeps the global supply glut overhang very much in play and risks worsening as prices approach $45 where some nimble US shale frackers – now the oil market’s swing producers – have suggested they would consider returning to idle rigs to pump at the more economically viable price. Which would of course add to the supply glut and thus give us a $45 ceiling to accompany the recent $28 floor.

However, there has been little focus on the narrowing of the spread between the two crude oil benchmarks over the last few weeks to the point they are now just a few cents apart. With US Crude +52 per cent versus Brent Crude +48 per cent we could assume that US Crude has overshot and may be due a drop back below $40. For a long time, US Crude traded at a significant discount to Brent, driven by a sharp rise in US shale production over the last half decade and Brent incorporating more transport costs. However, there are reasons why the spread should have evaporated of late, even testing positive in December. The US has lifted its export ban. North Sea production has actually picked in the face of declining US shale production. Bearish market bets on oil have been unwinding sharply, most notably on the widely used US Crude benchmark.

So are those bullish reversal patterns set to complete at $45/48 as we asked a fortnight ago? Or is $42 the best we are going to see in terms of challenging the long-term downtrend? Is the short squeeze complete? A supply glut, rising US stocks and Opec disagreement are simple enough drivers to appreciate, with plenty of data points and comments to media fuelling volatility. However, don’t forget the currency element with oil – like most commodities – denominated in USD. The USD is already off its 3.5-month dovish Fed-inspired lows of last week. This is thanks to a handful of US monetary policy makers very publicly expressing views which are rather at odds with the dovish stance most recently offered by Fed Chair Yellen. Any more of this and the resulting USD strength could easily serve to push oil back or at the very least hinder further advances.

This commentary was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.

Price of brent crude rises after Iran’s oil minister says he supports production freeze

The price of oil has risen after Iran’s oil minister Bijan Zanganeh has said that he supports other producers’ pledges to freeze production – although he didn’t confirm if Iran would follow suit.

Zanganeh said that today’s meeting with his counterparts from Venezuela, Iraq and Qatar was good and that he supports cooperation between Opec and non-Opec producers, according to reports.

He told the oil ministry news service Shana that he supports anything to stabilise the market and that this is the first step, but more steps need to be taken, reported Reuters.

The talks followed yesterday’s meeting in Doha, where Saudi Arabia, Russia, Qatar and Venezuela all pledged to freeze oil output, if other producers participated.

Getting Iran to agree is the tricky part and Zanganeh, while positive about the talks, did not explicitly say whether he would agree to freeze output. Iran only recently had its Western sanctions lifted so is obviously keen to ramp up output and make up for lost time.

The price of a barrel of brent crude was up more than three per cent this afternoon to around $33.

“Asking Iran to freeze its oil production level is illogical … when Iran was under sanctions, some countries raised their output and they caused the drop in oil prices.” Iran’s OPEC envoy, Mehdi Asali, was quoted as saying by the Shargh daily newspaper before the meeting, according to Reuters.

“How can they expect Iran to cooperate now and pay the price?” he said. “We have repeatedly said that Iran will increase its crude output until reaching the pre-sanctions production level.”

Oil prices have been painfully low for the past 18 months, mainly due to Saudi Arabia’s “lower for longer” strategy to try and drive out higher-cost competition.

But the Opec leader’s plan has not been working, which is why it is now trying other ways to boost prices.

The market so far is unconvinced. With the countries pledging to freeze production at near-record levels and Iran not yet on board, it is simply not enough to end the mammoth supply glut.

For more analysis, check out the piece I wrote yesterday for London newspaper City AM:
Saudi-Russian pledge to freeze oil production may be smoke and mirrors

ANALYSIS ON TODAY’S NEWS TO FOLLOW SHORTLY