It’s possible that OPEC is crying wolf with hints of an output freeze next month in Algiers; but it’s also possible that they are ramping up production to take the sting out of a freeze. This is a delicate balancing act that the Saudis need to play very carefully.
The official chatter is that the OPEC meeting in Algeria from September 26 to 28 could conclude with an agreement to freeze production by the member nations, with even Russia joining forces in a freeze that may prevent further oil price erosion. But everyone’s a bit gun-shy after the false hopes of the last round in Doha—even if a freeze at levels that existed then wouldn’t have meant much either—and it’s hard to blame them. The question is, how many times can the Saudis cry wolf without forever losing the ability to leverage this chatter to affect a rise in oil prices?
But lets rewind a bit to the nature of the recent chatter. The Saudi Energy Minister has indicated that Saudi Arabia, OPEC’s largest producer, is willing to proceed with a production freeze.
“We are, in Saudi Arabia, watching the market closely, and if there is a need to take any action to help the market rebalance, then we would, of course in cooperation with OPEC and major non-OPEC exporters,” said Saudi Energy Minister Khalid Al-Falih, reports Reuters.
“We are going to have a ministerial meeting of the International Energy Forum in Algeria next month, and there is an opportunity for OPEC and major exporting non-OPEC ministers to meet and discuss the market situation, including any possible action that may be required to stabilize the market.”
The hopes of reaching an agreement in Doha were scuttled by Saudi Arabia, because it wanted its arch rival, Iran, to participate in the freeze. Unfortunately for oil prices, Iran had made it clear that it would not join any such discussion until they reached pre-sanction levels of oil production.
What has changed from Doha to Algeria?
Iran’s oil production is close to its pre-sanction levels, meaning that its first cited prerequisite for any discussion has now been met—a criteria that was not met at the time of the Doha meeting. In addition, increasing oil production further by Iran is a big ask—it would need billions of dollars worth of investments in both upstream and downstream facilities to make this happen. With oil prices languishing below $50 a barrel, major oil companies are reluctant to commit huge sums of money for new oil projects.
Iran’s oilfields are mature, and more than half of its wells have an annual decline rate of 9 percent to 11 percent, according to Michael Cohen, an analyst at Barclays in New York. Therefore, at their existing production levels, they need an additional 200,000 to 300,000 barrels a day annually to replace the shortfall from their aging wells.
Iran needs more money and investment to continue pumping at the current rate, making it more likely for Iran to agree to some kind of an arrangement where they continue to pump oil at a rate close to their target of 4 million barrels a day.
That said, the last thing that Iran wants is to be sidelined, so Tehran is bound to make its presence felt at the meeting with strong statements. But at the end of the day, it is unlikely that Iran will scuttle an agreement where it has everything to gain and nothing to lose.
“There may be a little bit more to it this time. I’m still very skeptical, but it’s just with Iran being where they are production-wise, they’ll be more inclined to eventually go along with a deal,” said Again Capital’s John Kilduff, reports CNBC.
The oil-rich nation underestimated the resilience of the U.S. shale oil drillers when they declared war on them in 2014. American oil has not only kept flowing—the shale producers have managed to bring down production costs considerably. This ability was not anticipated by Saudi Arabia.
Meanwhile, Saudi Arabia has burned more than $175 billion in reserves since August 2014. The Saudis have introduced austerity measures and plans to monetize their crown jewel Saudi Aramco to survive the oil downturn. Nevertheless, things are not going well for this nation, which youth is struggling to find jobs as shown in the chart below.
A large population of unemployed youths who cannot take care of their families can sow seeds of frustration, and the Arab Spring will still be fresh in the memory of the rulers.
Saudi Arabia is struggling to grow in this oil downturn. Barring the 2009 dip, the current growth rate of 1.5 percent is the worst in a decade, according to data compiled by Bloomberg.
If oil prices remain low, the Saudi plan to sell shares in Saudi Aramco might not fetch them the valuations they expect, and a nation that cannot provide the most basic of amenities—food for its foreign workers—says a lot about their financial condition.
Saudi Arabia has seen the recent slide in crude oil prices towards the $40/barrel mark, which could have gone deeper without the chatter of a production freeze. And since they have already cried wolf once in Doha, doing so again in Algiers decrease the importance of any ‘chatter’ leverage they have in the future.
Rest of the nations already onboard
Barring Iran and Saudi Arabia, the rest of the nations were in agreement about the need to freeze production during the Doha meeting.
From OPEC to Russia, everyone is at record production levels
The oil-producing nations want to ensure that even if there are talks of a production freeze, they should not feel the pinch. Hence, even before the meeting, they will try to produce more, rather than less. The recent ramping up may very well be an indication that a freeze—although at a level higher than what would have likely come out of the Doha meeting—may be on the horizon.
The oil markets are so sensitive that even a statement of agreement by OPEC at the end of the meeting is enough to send oil prices flying above the resistance level of $51 a barrel.
What about the shale oil producers?
Though U.S. production is declining and experiencing a flurry of bankruptcies, the remaining companies are much better positioned to continue pumping at lower levels to survive the downturn.
Though the risk remains that the shale oil drillers will come back in full force when oil prices recover, the risk is worth taking. OPEC and Russia have realized that any new world order will have to include the shale oil companies. They are a large enough force not to be neglected or defeated.
With all of this in mind, an agreement between OPEC and Russia is more feasible in Algiers than it was in Doha. It might not mean much though, with output levels soaring ahead of the meeting. A freeze at current levels—or levels reached by the time of the meeting—won’t do much to change the fundamentals, nor is there any indication that a freeze would have long legs.
Link to original article: https://oilprice.com/Energy/Energy-General/OPECs-Output-Freeze-What-Has-Changed-Since-Doha.html
By Rakesh Upadhyay for Oilprice.com
By: Cliff Kincaid | Accuracy in Media
Some of us in the media watchdog business think Americans are anxious to read every last word from The New York Times and The Washington Post. These are important papers that do help shape the national agenda. But many people look to publications like the National Enquirer, the tabloid solidly in the corner of Donald J. Trump, the one that he used to smear Senator Ted Cruz (R-TX). On the other hand, the Democratic presidential candidate has US Weekly with millions of readers in her corner. Its May 2 issue featured a cover story on Hillary Clinton, telling America the “fun facts” about the former First Lady, such as that she loves to snack on hot chili peppers, and “I put hot sauce on everything.”
I was forced to read several copies of the weekly celebrity and entertainment magazine while waiting in a doctor’s office with a dead cell phone. It’s a different media world with its own sphere of influence that may eclipse so-called serious papers like the Post and Times.
In this world, Hillary is a celebrity, not a politician. But she’s just like us, an ordinary person. She eats things we eat. She does things we do.
I don’t know for sure who reads US Weekly on a regular basis, but the publicationclaims to have millions of subscribers and reaches through its various platforms a total of 50 million “young, high income consumers with the most timely and current entertainment news, style, beauty and fitness/nutrition content…”
As we see with the Hillary Clinton cover story, a big dose of political bias is also thrown in occasionally. This is a reflection of owner Jann Wenner’s preferences for the policies of the Democratic Party. He is a major donor to the Democratic Party and used another of his publications, Rolling Stone, to endorse Barack Obama in 2008. Rolling Stone ran a Paul Krugman article in 2014 declaring Obama one of America’s most successful presidents. Obamacare, Krugman declared at the time, was “working better than even the optimists expected.”
These days, of course, even liberal publications are warning that the so-called Affordable Health Care Act is on the verge of complete failure and disaster because of higher costs.
The US Weekly issue with Mrs. Clinton on the cover was an obvious attempt by the magazine, acting in concert with the campaign, to “humanize” the candidate and counteract charges that she is a liar with health problems and not fit to be president.
The “25 Things You Don’t Know About Me” cover story had nothing about emails or Benghazi. Instead, written from her own perspective, she informs us, “Bill Clinton proposed to me twice before I said yes.” Nothing was said about his womanizing or impeachment. It was if they are still a happily married couple. There was no talk of a lousy marriage in the pages of US Weekly.
The inside story featured a flattering picture of Mrs. Clinton waving, with the notation that readers can “Find out more about her campaign at hillaryclinton.com.”
Another revelation from Hillary was, “I do yoga. Not enough.” Plus, “Chocolate is my weakness…as are Goldfish,” a reference to the snack.
You get the idea: she’s just an ordinary person with needs and feelings like everybody else. She’s not some power-hungry politician with a radical left agenda. She’s one of us.
We may laugh at such coverage, but the owner has to figure that his mostly young readers can be easily fooled into accepting such an extreme make-over of one of the most dishonest candidates ever to run for the highest office in the land.
Number 18 in the list of 25 things we don’t know about Hillary is that when President Obama asked her to serve as his secretary of state, she joined the administration: “Because when your president asks you to serve, you say yes.” This is one patriotic lady devoted to public service. She is truly for the public interest, the common good.
The US Weekly website is similar to the magazine. Included with the latest celebrity news is an item on how Mrs. Clinton opened a jar of pickles and had her pulse taken on the Jimmy Kimmel Live show to prove she’s healthy, while Stephen Colbert did a bit comparing Donald J. Trump to disgraced American swimmer Ryan Lochte.
In addition to the US Weekly puff-piece on Hillary, owner Jann Wenner endorsed Mrs. Clinton in Rolling Stone magazine in March, saying that she “is one of the most qualified candidates for the presidency in modern times…” Attempting to refute charges that she is a liar, he added, “I keep hearing questions surface about her honesty and trustworthiness, but where is the basis in reality or in facts? This is the lingering haze of coordinated GOP smear campaigns against the Clintons—and President Obama—all of which have come up empty, including the Benghazi/e-mail whirlwind, which after seven GOP-led congressional investigations has turned up zilch.”
Zilch has now been surpassed by several more email controversies, to the point where Tuesday’s New York Times is running a story headlined, “New Clinton Emails Raise Shadow Over Her Campaign.”
The paper reported that “…thousands of emails that Mrs. Clinton did not voluntarily turn over to the State Department last year could be released just weeks before the election in November.”
Some of them may be as hot as her hot sauce. Kimmel should be prepared to check her pulse at that point.