OIL VIEWSLETTER

Crude rallies with eye on extension of deeper OPEC+ cuts - June 5, 2020

After driving a bit of a roller-coaster in market sentiment over the timing and likely decision on production cuts beyond June, the OPEC/non-OPEC meeting was finally set for Saturday, June 6.    

Crude had spiked by 5% in intraday trading Friday night in Singapore. ICE Brent futures had notched a high of $42.45 and WTI, a peak just shy of $40 -- levels not seen since the catastrophic OPEC+ meeting of March 6.

It’s not usual for the mere announcement of an OPEC+ meeting schedule to send crude into a tizzy. But this time the market was front-running the meeting because the “deal” is thought to have been already clinched behind the scenes. 

Russia and Saudi Arabia were said to have agreed informally on Wednesday to roll over the current 9.7 million b/d of OPEC+ output cuts to July, instead of tapering them to 7.7 million b/d as set out in the April 12 deal. While an extension through Q3 was also said to have been discussed in recent days, a dovish Russia would have pushed back.

The newfound OPEC+ cohesion seems to be holding, but remains fragile. Fault lines could open up in the coming months on at least three contentious fronts. 

One of them was already dominating the headlines this week – a novel proposal to take the major quota-busters Iraq and Nigeria to task by demanding they make deeper output cuts in the coming months to offset their excess production in May. What kind of commitments are secured from the two may be the more interesting outcome to watch from tomorrow’s meeting.  

In the meantime, crude may have already priced in the extension, with little headroom left after tomorrow’s agreement.

BULLS & BEARS

Coronavirus and oil impact matrix - May 2020 - May 29, 2020

The oil market is past its inflection point. Crude prices have been gradually recovering since the end of April, albeit routinely pulled back by doubts over the pace of normalization of global economic activity, rising tensions between the US and China, and of late, doubts over the OPEC/non-OPEC alliance being able to maintain its cohesion.

This issue sees several "Mildly Bullish" factors in the market. But nearly all of them feel tentative and come with some caveats, which means the price recovery will be jagged. 

ENERGY RADAR

energy radar first report - Jan. 13, 2020

Shortly before the markets opened, US President Donald Trump tweeted that he had authorised the release of stocks from the country’s Strategic Petroleum Reserve if necessary, to keep the y 9.30 am Singapore time (0130 GMT), three and a half hours after trade opened for the week on the CME and ICE futures exchanges, crude had calmed down somewhat, to gains of 10-12% versus Friday’s clsoe. markets

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BRIEFING NOTES

How big is the oil supply cut -- 9.7 mil b/d or up to 20 mil b/d? - April 14, 2020

Crude has shrugged off the 9.7 mil b/d cut agreed for May-June by OPEC+ on Apr 12.

ICE Brent settled a meagre 26 cents higher, while WTI closed 35 cents lower on Apr 13.

Abdulaziz, Novak and Trump are insisting the actual reduction will be 15-20 mil b/d.

Where is the truth? Somewhere in between or is it creative accounting?

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CRUDE IN SIGHT

Crude mildly weaker early Fri, awaiting OPEC+ decision on cuts - June 5, 2020

Crude futures were marginally weaker early Friday in Asia as the market awaited OPEC/non-OPEC decision on production quotas beyond June 30, when the alliance’s current curbs of 9.7 million b/d are set to taper to 7.7 million b/d. The ministerial meeting could take place this weekend, according to the latest media reports.

Saudi Arabia and Russia, de facto leaders of the 23-member producers’ alliance, are said to have informally agreed on Wednesday to an extension of the 9.7 million b/d cuts to July but are said to be holding out for some of the overproducers in May, prominently Iraq and Nigeria, to recommit to adhering to their quotas.

Russian Energy Minister Alexander Novak said on Thursday that he expects the global oil market to potentially see 3-5 million b/d of supply deficit in July, according to Interfax.

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