Crude: The coalition of the not so willing

June 20, 2018 08:40 AM
Daily Energy Market Analysis

It looks like it is going to be a showdown at the OPEC coral as Iran leads the coalition of the not so willing to raise oil production along with Iraq and Venezuela. The coalition of the willing lead by Saudi Arabia and the so-called Plus 1, Non-OPEC Russia seems as committed as ever to raising oil output. Russian Energy Minister Alexander Novak Is pushing for a 1.5-million-barrel increase in output, which is partly a negotiating tactic and partly a concern that the market might become undersupplied in the third quarter. “Oil demand usually grows at the steepest pace in the third quarter ... We could face a deficit if we don't take measures. In our view, this could lead to market overheating,” he said.

The Iranian oil minister is having none of that. In fact, he sayss that the only reason Saudi Arabia and Russia are talking about an increase in production is because of pressure from the Trump Administration. Iranian Oil Minister Bijan Zanganeh was very vocal in his opposition to any increase in production and a reported compromise offer was rebuffed. He suggested that “President Trump thinks that [he] can order OPEC and instruct to OPEC to do something… It's not fair, I think, and OPEC is not a part of the Department of Energy of the United States," Zanganeh said.

Iran is also angry that new sanctions on their country from the United States means that this increase in production will only benefit the haves in the cartel and not the have-nots in the cartel, like Iran, Iraq and Venezuela. Or I guess you can call them the coalition of the not willing to raise output.

This means that the OPEC Meeting could end without an agreement unless the Iranians have a significant change of heart. Marketwatch reported that Iran’s oil minister said that he does not believe there will be an agreement at the OPEC meeting, according to tweets from several reporters in Vienna. Market Watch writes that the 174th meeting of the OPEC Conference is scheduled to begin Friday with its opening session at 10 a.m. local time, which will be 4 a.m. Eastern time. A closed-session meeting between all OPEC heads of delegation and OPEC Secretary General Mohammad Barkindo will start at 11 a.m. local time, or 5 a.m. Eastern time. A press conference will then be held at 1 p.m. local time, or 7 a.m. Eastern time. And on Saturday: The fourth OPEC and non-OPEC Ministerial Meeting will have the same time frames for the opening session and closed-session meeting. The joint press conference will be held at 1 p.m. local time, or 5 a.m. Eastern.

Ahead of all that, OPEC is scheduled to hold its ninth meeting of the Joint Ministerial Monitoring Committee on Thursday. The committee is tasked with “ensuring the objectives” of the production-cut agreement between OPEC and non-OPEC producers are met. OPEC’s seventh International Seminar, which offers “fresh impetus” to key issues and challenges facing the petroleum industry, also runs from Wednesday to Thursday. This was the event that some U.S. shale producers were going to speak at but decided it might not be the best time with the Trump Administration so critical of OPEC right now.

In fact, in Congress there is a NO-OPEC Bill. Bloomberg News reported that U.S. lawmakers have resurrected the so-called "No Oil Producing and Exporting Cartels Act," or NOPEC, which proposes making the cartel subject to the Sherman antitrust law, used more than a century ago to break up the oil empire of John Rockefeller. The bill was re-introduced in late May and cleared its first legislative hurdle last week when the House Judiciary Committee quickly sent it to floor deliberation. It would allow the U.S. government to sue OPEC for manipulating the energy market, potentially seeking billions of dollars in reparations.

We still will get the EIA oil inventories today. The API last night showed crude supply down by 3.016 million barrels. Yet we say gasoline supply increase by +2.113 million barrels and distillate rise by 750,000 barrels.

China sanction fears are easing. Still, oil producers in the US are worried. Reuters reports that China is the largest customer for U.S. crude, importing about 363,000 barrels a day in the six months ended in March. Thomson Reuters shipping data shows those exports have increased since, rising to an expected 450,000 bpd in July. U.S. oil exports have steadily grown since the four-decade-old ban on crude exports was lifted. Still, I think fears of a trade war are way overblown.  

About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.