Tag: OPEC Meetings

Portfolio manager says OPEC+ alliance could break — sending oil prices down to $35 a barrel

Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman speaks during the 8th OPEC International Seminar in Vienna, Austria, July 5, 2023.

Xinhua News Agency | Xinhua News Agency | Getty Images

An influential oil producers’ alliance could collapse if unity dissolves around output policy, according to the managing partner of investing group Clean Energy Transition.

Speaking to CNBC’s “Street Signs Europe” on Thursday, Per Lekander said waning oil demand growth and a lack of cooperation may facilitate the demise of OPEC+ — a group of 23 nations that produces roughly 40% of the world’s crude oil.

The breakup of OPEC+, Lekander said, could send oil prices careening to as low as $35 per barrel.

“In a growing market, time is your friend. You just need to wait a bit and things tighten up and improve,” Lekander said. “In a declining market, time is your enemy. You have to keep cutting, keep cutting, keep cutting.”

He added, “The more negative growth [there] is, and the less cooperation you have — and remember the last OPEC decision, it was really the Saudis doing it on their own … so I would say, if my forecast is correct, and I’m very sure it is … it is going to break.”

A spokesperson for OPEC was not immediately available to comment.

OPEC+ has been trimming oil production since November. Oil prices, which are down sharply year-to-date, were trading slightly higher on Thursday afternoon.

Brent crude futures with September expiry were up around 0.8% at $83.53 a barrel at around midday London time, while U.S. West Texas Intermediate crude futures with September delivery rose 1% to trade at $79.56 a barrel. Both contracts are up over 12% so far this month.

“There was a period in the 1990s and the 2000s where supply was so much, they couldn’t jack up the price, but for most of the time, the oil price since 1974 has been artificially too high,” Lekander said.

“If the cartel can’t operate, I would say short-term you go to $35 and mid-term probably $45,” he added.

The OPEC+ group has sought to distance itself from accusations of cartel behavior, saying its policies target global supply inventories, rather than specific fixed prices. Nevertheless, some Middle East nations in the coalition, which heavily depend on fossil fuel revenues, list oil price assumptions and forecasts in their national budget plans.

OPEC and allies

The Organization of Petroleum Exporting Countries was initially formed in 1960 by five founding members: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The alliance rose to international prominence through the following decade and has gradually expanded. OPEC joined forces with 10 non-OPEC partners — including heavyweight Russia — to jointly agree production policy in 2016, informally creating the coalition known as OPEC+.

OPEC itself is actively seeking to recruit new members to the alliance, Secretary-General Haitham al-Ghais said in early July.

OPEC+ officials have frequently stressed the group’s unity in policy-making, although allied countries typically also vie to protect national interests when accepting output commitments. OPEC+ cooperation briefly ceased for one month in 2020, triggering a price war as Russia and Saudi Arabia flooded the market. The alliance later reunited in May of that year, agreeing stark production cuts to address the drop in global demand triggered by lower transport fuel consumption, after the onset of the Covid-19 pandemic. Since then, the OPEC+ alliance has been careful to telegraph unity in its decision-making, including in its voluntary production cuts.

In addition to their coalition commitments, several OPEC+ members are now carrying out 1.66 million barrels per day of discretionary output declines until the end of 2024. Saudi Arabia and Russia are further implementing an additional 1 million-barrels-per-day and a 500,000 barrels-per-day drop in their production and exports over July and August, respectively.

The U.S., which is not a member of the OPEC+ group, has repeatedly called on the alliance to pump more to help the global economy and has criticized Riyadh’s cooperation with Moscow following Russia’s full-scale invasion of Ukraine.

Saudi Arabia, meanwhile, has frequently ignored Washington’s demands and reportedly said earlier this month that it would do “whatever necessary” to support the market.

Both OPEC+ officials and the Paris-based International Energy Agency have signaled a potential supply crunch in the second half of the year, when the institutions anticipate a pickup in demand.

A technical committee of the OPEC+ group, the Joint Ministerial Monitoring Committee, will meet early next month to assess compliance and market fundamentals. The JMMC cannot change the existing OPEC+ policy, but it can call for a meeting of the group’s ministers to do so.

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July 27, 2023
OPEC+ agrees to stick to its existing policy of reducing oil production ahead of Russia sanctions

Led by Saudi Arabia and Russia, OPEC+ agreed in early October to reduce production by 2 million barrels per day from November.

Vladimir Simicek | Afp | Getty Images

An influential alliance of oil producers on Sunday agreed to stay the course on output policy ahead of a pending ban from the European Union on Russian crude.

OPEC and non-OPEC producers, a group of 23 oil-producing nations known as OPEC+, decided to stick to its existing policy of reducing oil production by 2 million barrels per day, or about 2% of world demand, from November until the end of 2023.

Energy analysts had expected OPEC+ to consider fresh price-supporting production cuts ahead of a possible double blow to Russia’s oil revenues.

The European Union is poised to ban all imports of Russian seaborne crude from Monday, while the U.S. and other members of the G-7 will impose a price cap on the oil Russia sells to countries around the world.

The Kremlin has previously warned that any attempt to impose a price cap on Russian oil will cause more harm than good.

Oil prices have fallen to below $90 a barrel from more than $120 in early June ahead of potentially disruptive sanctions on Russian oil, weakening crude demand in China and mounting fears of a recession.

Led by Saudi Arabia and Russia, OPEC+ agreed in early October to reduce production by 2 million barrels per day from November. It came despite calls from the U.S. for the group to pump more to lower fuel prices and help the global economy.

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December 4, 2022
OPEC+ to consider deeper oil output cuts ahead of Russia sanctions and proposed price cap

OPEC+, a group of 23 oil-producing nations led by Saudi Arabia and Russia, will convene on Sunday to decide on the next phase of production policy.

Bloomberg | Bloomberg | Getty Images

OPEC and non-OPEC oil producers could impose deeper oil output cuts on Sunday, energy analysts said, as the influential energy alliance weighs the impact of a pending ban on Russia’s crude exports and a possible price cap on Russian oil.

OPEC+, a group of 23 oil-producing nations led by Saudi Arabia and Russia, will convene on Sunday to decide on the next phase of production policy.

The highly anticipated meeting comes ahead of potentially disruptive sanctions on Russian oil, weakening crude demand in China and mounting fears of a recession.

Claudio Galimberti, senior vice president of analysis at energy consultancy Rystad, told CNBC from OPEC’s headquarters in Vienna, Austria, that he believes the group “would be better off to stay the course” and roll over existing production policy.

“OPEC+ has been rumored to consider a cut on the basis of demand weakness, specifically in China, over the past few days. Yet, China’s traffic nationwide is not down dramatically,” Galimberti said.

Energy market participants remain wary about the European Union’s sanctions on the purchases of the Kremlin’s seaborne crude exports on Dec. 5, while the prospect of a G-7 price cap on Russian oil is another source of uncertainty.

The 27-nation EU bloc agreed in June to ban the purchase of Russian seaborne crude from Dec. 5 as part of a concerted effort to curtail the Kremlin’s war chest following Moscow’s invasion of Ukraine.

Concern that an outright ban on Russian crude imports could send oil prices soaring, however, prompted the G-7 to consider a price cap on the amount it will pay for Russian oil.

No formal agreement has yet been reached, although Reuters reported Thursday that EU governments had tentatively agreed to a $60 barrel price cap on Russian seaborne oil.

“The other factor OPEC will need to consider is indeed the price cap,” Galimberti said. “It’s still up in the air, and this adds to the uncertainty.”

The Kremlin has previously warned that any attempt to impose a price cap on Russian oil will cause more harm than good.

‘So much uncertainty’

OPEC+ agreed in early October to reduce production by 2 million barrels per day from November. It came despite calls from the U.S. for OPEC+ to pump more to lower fuel prices and help the global economy.

The energy alliance recently hinted it could impose deeper output cuts to spur a recovery in crude prices. This signal came despite a report from The Wall Street Journal suggesting an output increase of 500,000 barrels per day was under discussion for Sunday.

OPEC+ agreed in early October to reduce production by 2 million barrels per day from November. It came despite calls from the U.S. for OPEC+ to pump more to lower fuel prices and help the global economy.

Bloomberg | Bloomberg | Getty Images

Speaking earlier this week, RBC Capital Markets’ Helima Croft said there was no expectation of a production increase from the upcoming OPEC+ meeting and a “significant chance” of a deeper output cut.

“There is so much uncertainty,” Croft told CNBC’s “Squawk Box” on Tuesday. OPEC delegates “have to factor in what happens with China but also what happens with Russian production.”

“My expectation right now is, if prices are flirting with Brent breaking into the 70s, certainly OPEC will do a deeper cut, but the question is, how do they factor in what is going to come the next day?” Croft said. “So, I still think it is up for grabs.”

Oil prices, which have fallen sharply in recent months, were trading slightly lower ahead of the meeting.

International Brent crude futures traded 0.2% lower at $87.78 a barrel on Friday morning in London, down from over $123 in early June. U.S. West Texas Intermediate futures, meanwhile, dipped 0.3% to trade at $80.95, compared to a level of $122 six months ago.

“Barring any negative surprise during Sunday’s virtual OPEC+ talks and assuming a healthy compromise on Russian oil price cap before the EU sanctions kick in on Monday it is tempting to audaciously conclude that the bottom has been found,” Tamas Varga, analyst at broker PVM Oil Associates, said in a note Thursday.

Varga said oil prices trading below $90 a barrel was “not acceptable” for OPEC and Russia was widely expected to introduce retaliatory measures against those signing up for the G-7 deal.

“Choppy and nervous market conditions will prevail, but the new month should bring more joy than November,” he added.

‘High probability’ of an output cut

Jeff Currie, global head of commodities at Goldman Sachs, said OPEC ministers would need to discuss whether to accommodate further weakness in demand in China.

“They got to deal with the fact that, hey, demand is down in China, prices are reflecting it, and do they accommodate that weakness in demand?” Currie told CNBC’s Steve Sedgwick on Tuesday.

“I think there is a high probability that we do see a cut,” he added.

Analysts at political risk consultancy Eurasia Group said that lower oil prices “heighten the risk” of a new OPEC+ output cut.

“Ultimately, the decision will depend on the trajectory of the oil price when OPEC+ meets and how much disruption is evident in markets because of the EU sanctions,” Eurasia Group analysts led by Raad Alkadiri said Monday in a research note.

If Brent crude futures dip below $80 a barrel for a sustained period ahead of the meeting, Eurasia Group said OPEC+ leaders could push for another production cut to shore up prices and bring Brent futures back up to around $90 — a level “that they appear to favor.”

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December 2, 2022
Saudis say US sought 1 month delay of OPEC+ production cuts

DUBAI, United Arab Emirates — Saudi Arabia said Thursday that the U.S. had urged it to postpone a decision by OPEC and its allies — including Russia — to cut oil production by a month. Such a delay could have helped reduce the risk of a spike in gas prices ahead of the U.S. midterm elections next month.

A statement issued by the Saudi Foreign Ministry didn’t specifically mention the Nov. 8 elections in which U.S. President Joe Biden is trying to maintain his narrow Democratic majority in Congress. However, it stated that the U.S. “suggested” the cuts be delayed by a month. In the end, OPEC announced the cuts at its Oct. 5 meeting in Vienna.

Holding off on the cuts would have likely delayed any rise in gas prices until after the elections.

Rising oil prices — and by extension higher gasoline prices — have been a key driver of inflation in the U.S. and around the world, worsening global economic woes as Russia’s months-long war on Ukraine also has disrupted global food supplies. For Biden, gasoline prices creeping up could affect voters. He and many lawmakers have warned that America’s longtime security-based relationship with the kingdom could be reconsidered.

The decision by the Saudi Foreign Ministry to release a rare, lengthy statement showed how tense relations between the two countries have become.

The White House pushed back on Thursday, rejecting the idea that the requested delay was related to the U.S. elections and instead linking it to economic considerations and Russia’s war on Ukraine.

“We presented Saudi Arabia with analysis to show that there was no market basis to cut production targets, and that they could easily wait for the next OPEC meeting to see how things developed,” said John Kirby, coordinator for strategic communications at the National Security Council.

“Other OPEC nations communicated to us privately that they also disagreed with the Saudi decision, but felt coerced to support Saudi’s direction,” he added.

U.S.-Saudi ties have been fraught since the 2018 killing and dismemberment of Washington Post columnist Jamal Khashoggi, which Washington believes came on the orders of Saudi Crown Prince Mohammed bin Salman. Meanwhile, higher energy prices provide a weapon Russia can use against the West, which has been arming and supporting Ukraine.

The statement by the Saudi Foreign Ministry acknowledged that the kingdom had been talking to the U.S. about postponing OPEC+’s 2 million barrel cut announced last week.

“The government of the kingdom clarified through its continuous consultation with the U.S. administration that all economic analyses indicate that postponing the OPEC+ decision for a month, according to what has been suggested, would have had negative economic consequences,” the ministry said in its statement.

The ministry’s statement confirmed details from a Wall Street Journal article this week that quoted unnamed Saudi officials saying the U.S. sought to delay the OPEC+ production cut until just before the midterm elections. The Journal quoted Saudi officials as describing the move as a political gambit by Biden ahead of the vote.

The kingdom also criticized attempts to link its decision to Russia’s war on Ukraine.

“The kingdom stresses that while it strives to preserve the strength of its relations with all friendly countries, it affirms its rejection of any dictates, actions, or efforts to distort its noble objectives to protect the global economy from oil market volatility,” it said. “Resolving economic challenges requires the establishment of a non-politicized constructive dialogue, and to wisely and rationally consider what serves the interests of all countries.”

Both Saudi Arabia and the neighboring United Arab Emirates, key producers in OPEC, voted in favor of a United Nations General Assembly resolution Wednesday to condemn Russia’s “attempted illegal annexation” of four Ukrainian regions and demand its immediate reversal.

Once muscular enough to grind the U.S. to a halt with its 1970s oil embargo, OPEC needed non-members like Russia to push through a production cut in 2016 after prices crashed below $30 a barrel amid rising American production. The 2016 agreement gave birth to the so-called OPEC+, which joined the cartel in cutting production to help stimulate prices.

The coronavirus pandemic briefly saw oil prices go into negative territory before air travel and economic activity rebounded following lockdowns around the world. Benchmark Brent crude sat over $92 a barrel early Wednesday, but oil-producing nations are worried prices could sharply fall amid efforts to combat inflation.

Biden, who famously called Saudi Arabia a “pariah” during his 2020 election campaign, traveled to the kingdom in July and fist-bumped Prince Mohammed before a meeting. Despite the outreach, the kingdom has been supportive of keeping oil prices high in order to fund Prince Mohammed’s aspirations, including his planned $500 billion futuristic desert city project called Neom.

On Tuesday, Biden warned of repercussions for Saudi Arabia over the OPEC+ decision.

“There’s going to be some consequences for what they’ve done, with Russia,” Biden said. “I’m not going to get into what I’d consider and what I have in mind. But there will be — there will be consequences.”

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Associated Press writer Aamer Madhani in Washington contributed to this report.

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Follow Jon Gambrell on Twitter at www.twitter.com/jongambrellAP.

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October 13, 2022
OPEC+ makes big oil cut to boost prices; pump costs may rise

FRANKFURT, Germany — The OPEC+ alliance of oil-exporting countries on Wednesday decided to sharply cut production to support sagging oil prices, a move that could deal the struggling global economy another blow and raise politically sensitive pump prices for U.S. drivers just ahead of key national elections.

Energy ministers meeting at the Vienna headquarters of the OPEC oil cartel cut production by 2 million barrels per day starting in November at their first face-to-face meeting since the start of the COVID-19 pandemic.

Besides a token trim in oil production last month, the major cut is an abrupt turnaround from months of restoring deep cuts made during the depths of the pandemic and could help alliance member Russia weather a looming European ban on oil imports.

In a statement, OPEC+ said the decision was based on the “uncertainty that surrounds the global economic and oil market outlooks.”

The impact of the production cut on oil prices — and thus the price of gasoline made from crude — will be limited somewhat because OPEC+ members are already unable to meet the quotas set by the group.

The alliance also said it was renewing its cooperation between members of the OPEC cartel and non-members, the most significant of which is Russia. The deal was to expire at year’s end.

The decision comes as oil trades well below its summer peaks because of fears that major global economies such as the U.S. or Europe will sink into recession due to high inflation, rising interest rates meant to curb rising consumer prices, and uncertainty over Russia’s war against in Ukraine.

The fall in oil prices has been a boon to U.S. drivers, who saw lower gasoline prices at the pump before costs recently started ticking up, and for U.S. President Joe Biden as his Democratic Party gears up for congressional elections next month.

White House press secretary Karine Jean-Pierre told reporters Tuesday that the U.S. would not extend releases from its strategic reserve to increase global supplies.

Biden has tried to receive credit for gasoline prices falling from their average June peak of $5.02 — with administration officials highlighting a late March announcement that a million barrels a day would be released from the strategic reserve for six months. High inflation is a fundamental drag on Biden’s approval and has dampened Democrats’ chances in the midterm elections.

Oil supply could face further cutbacks in coming months when a European ban on most Russian imports takes effect in December. A separate move by the U.S. and other members of the Group of Seven wealthy democracies to impose a price cap on Russian oil could reduce supply if Russia retaliates by refusing to ship to countries and companies that observe the cap.

The EU agreed Wednesday on new sanctions that are expected to include a price cap on Russian oil.

Russia “will need to find new buyers for its oil when the EU embargo comes into force in early December and will presumably have to make further price concessions to do so,” analysts at Commerzbank wrote in a note. “Higher prices beforehand — boosted by production cuts elsewhere — would therefore doubtless be very welcome.”

Dwindling prospects for a diplomatic deal to limit Iran’s nuclear program have also lowered prospects for a return of as much as 1.5 million barrels a day in Iranian oil to the market if sanctions are removed.

Oil prices surged this summer as markets worried about the loss of Russian supplies from sanctions over the war in Ukraine, but they slipped as fears about recessions in major economies and China’s COVID-19 restrictions weighed on demand for crude.

International benchmark Brent has sagged as low as $84 in recent days after spending most of the summer months over $100 per barrel.

At its last meeting in September, OPEC+ reduced the amount of oil it produces by 100,000 barrels a day in October. That token cut didn’t do much to boost lower oil prices, but it put markets on notice that the group was willing to act if prices kept falling.

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October 5, 2022