The Rendon Group Snapshot – 05 December 2016

by TRG Alerts Admin on December 12, 2016

The Rendon Group

(05DEC16)

Each week The Rendon Group’s media analysts will focus on a different continent and a different issue affecting that continent. As always, we remain available to answer any questions you may have and to provide additional information upon request. For more information regarding The Rendon Group’s products and services, please contact us at Alert@Rendon.com or +1-202-745-4900.

OPEC Countries Reach Deal to Cut Oil Production

opec-snapshot

Saudi Energy Minister Khalid al-Falih at the OPEC meeting in Vienna on 30NOV. (Christian Bruna/European Pressphoto Agency)

 

This week’s snapshot focuses on the Organization of the Petroleum Exporting Countries (OPEC) agreement to limit crude oil production. Major oil exporting nations and firms in the oil sector have suffered from low oil prices over the last two years. The collapse in prices was largely caused by an OPEC decision in NOV14  not to cut production despite a global glut. While there has been a reduction in transportation costs during this period, government officials in oil-exporting countries, such as Angola and Venezuela, have been forced to cut public budgets, and consequently, experience social and political turmoil. In order to bolster sagging prices, OPEC countries agreed to collectively cut oil production later in the year. Skeptics were doubtful that the OPEC nations could come to terms since Iraq recently resisted a production cut due to the country’s need to raise funds to fight the Islamic State. Ironically, the de-facto OPEC leader, Saudi Arabia, made a late push to cut production due to the desire to monetize massive reserves of crude oil in order to diversify the kingdom’s economy. In result, the world’s largest oil exporters agreed on 01DEC16 to cut output for the first time in eight years. The reduction in production is scheduled to begin on 01JAN16 and to last six months. Oil markets soared, as investors prepared for the possibility that lower OPEC output would lead to a swifter rebalancing between global crude supply and demand. Some experts believe the agreement will provide some relief to the poorest countries, but it will not reverse the economic consequences of extended low prices of oil. Others believe that it is likely the price increase will encourage American oil firms to increase production, as well as entice OPEC members to cheat, which will nullify the recent deal. OPEC will meet non-OPEC countries to finalize a global oil limiting pact on 10DEC16 in Vienna with the hopes that non-OPEC nations, such as Russia, will contribute to the reduction.

 

News summary of events during the week of 28NOV16 – 05DEC16

 

  • 28NOV: Crude oil dropped below USD46 a barrel on concern an OPEC deal to stabilize prices was in jeopardy as major producers disagreed on curbing output. (Bloomberg)
  • 28NOV: Venezuelan Oil Minister Eulogio del Pino said he was “optimistic” that the Vienna OPEC meeting would reach an agreement on oil production cuts to boost prices. (AFP)
  • 29NOV: Saudi Oil Minister Khalid Al-Falih said the OPEC countries should sit back and let demand drive up prices “without an intervention from OPEC.” (AP)
  • 29NOV: Kazakhstan’s Energy Minister Kanat Bozumbayev said that he had not yet decided whether to attend the meeting of OPEC members and other oil producers in Vienna. (Reuters)
  • 30NOV: Saudi Oil Minister Khaled al-Falih said that the sentiment was “optimistic” at an OPEC meeting meant to agree the cartel’s first oil output cut in eight years. (AFP)
  • 30NOV: Algerian Energy Minister Noureddine Bouterfa  said the OPEC decision to cut its oil output by 1.2 million barrels per day is likely to push oil prices to around 60 U.S. dollars a barrel by the end of this year. (Xinhua)
  • 01DEC: The world’s largest oil exporters agreed to cut output for the first time in eight years. (Reuters)
  • 01DEC: Oil prices resumed their rise and held above the $50 barrier following OPEC’s decision to carry out its first output cut in eight years. (AFP)
  • 01DEC: Iran’s President Hassan Rouhani welcomed the OPEC deal, calling the decision “a positive development.”(AP)
  • 01DEC: Indonesia suspended its OPEC membership again, as the crude oil importer said it does not agree to the club’s production cuts. (Reuters)
  • 01DEC: Azerbaijani Energy Minister Natig Aliyev said his country has no intention of increasing crude oil output in 2017. (Reuters)
  • 02DEC: Oil prices rose for a third straight day, after OPEC’s agreement to cut output for the first time in eight years. (WSJ)
  • 03DEC: OPEC plans to meet non-OPEC countries to finalise a global oil limiting pact on 10DEC in Vienna. (Reuters)
  • 04DEC: Omani oil and gas minister Mohammad bin Hamad al-Rumhy said that his country will attend the oil producers’ meeting with OPEC in Vienna on 10DEC. (Reuters)
  • 04DEC: Industry sources said Saudi Arabia and Kuwait are expected to agree this month to resume oil production from the jointly operated oilfields in the Neutral Zone that lies between both countries (Reuters)
  • 04DEC: Iranian President Hassan Rouhani presented his budget, with OPEC’s decision to cut production helping to boost its expected oil revenues. (AFP)
  • 05DEC: Crude rose above $55 a barrel to hit a 16-month high on as rising prospects of a tightening market after OPEC’s landmark deal to cut production has given speculators impetus to increase bets on higher prices. (Reuters)

 

Sample of Twitter handles tweeting about OPEC deal to cut production

 

  • @Amena__BakrAmena Bakr, Gulf Energy Correspondent, Energy Intelligence Group
  • @JavierBlas2Javier Blas, Chief Energy Correspondent, Bloomberg News
  • @oilSheppardDavid Sheppard, Energy Markets Editor, Financial Times
  • @prestigeEconJason Schenker, President, Prestige Economics
  • @SVakhshouriSara Vakhshouri, President, SVB Energy International

 

Sample of Third Party Validators regarding the OPEC agreement to limit production

 

Michael Cohen, Director of Energy Commodities Research, Barclays

“It is a dangerous game that Saudi Arabia is playing. Should prices rise too high then the amount of shale oil that comes into the market will eventually start to cut into their market share.”

  • “Oil Prices Rise for Third Straight Day,” WSJ, 02DEC16

 

James McCormack, Global Head, Sovereigns at Fitch Ratings Inc.

“OPEC actions certainly do not fully resolve the stresses most emerging market oil exporters are experiencing.”

  • “OPEC Deal Is No Remedy for Poorest Members,” WSJ, 02DEC16

 

Robin Mills, CEO, Qamar Energy (UAE)

“There are a lot of spending commitments there. Even though you want to shift the economy away from oil, that still would depend quite a lot on upfront spending.”

  • “Saudis Wager On Higher Oil Prices to Drive Economic Diversification,” WSJ, 01DEC16

 

Jingyi Pan, Market Strategist, IG Singapore

“Not only had hopes of higher prices been realised, the reputation of the Opec has also been salvaged, prompting the surge. Sceptics have now placed their focus on the implementation of the Opec deal where Saudi Arabia will be shouldering the bulk of the cut.”

  • “Oil Resumes Rise after Opec Cut,” AFP, 01DEC16

 

Mark Waggoner, President, Excel Futures

“I think it’s getting close to the end of its rope. I see it getting tired and falling back. I just don’t see this as a game changer when they’re pumping as much as they are.”

  • “Oil Prices Rise for Third Straight Day,” WSJ, 02DEC16

 

Sample of open source research conducted by TRG analysts related to the OPEC deal to cut production

 

  1. OPEC Reaches Deal to Limit Production, Sending Prices Soaring

 

Media: New York Times

Byline: Stanley Reed and Clifford Krauss

Date: 30 November 2016

 

VIENNA — After years of trying fruitlessly to prop up energy markets, OPEC on Wednesday finally reached a consensus on production cuts, sending oil prices soaring. The problem is, the euphoria in the markets may not last.

 

With prices still at less than half the levels of two years ago, the Organization of the Petroleum Exporting Countries agreed this fall to lower collective production. But it could not figure out how to spread the cuts among the countries.

 

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  1. OPEC members, struggling with a glut in oil, finalize a deal to cut their output

 

Media: Washington Post

Byline: Javier Blas, Wael Mahdi and Grant Smith

Date: 30 November 2016

 

OPEC clinched a deal to curtail oil supply, confounding skeptics as the need to clear a record global crude glut — and prove the group’s credibility — brought its first cuts in eight years. Crude rose as much as 8.8 percent in London.

 

OPEC will reduce output to 32.5 million barrels a day, Iranian Oil Minister Bijan Namdar Zanganeh told reporters in Vienna after a ministerial meeting Wednesday. The breakthrough deal, effective in January, showed an acceptance by Saudi Arabia that Iran, as a special case, can still raise production.

 

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  1. Iraq hopes OPEC deal will help cover its massive war costs

 

Media: Associated Press

Byline: Sinan Salaheddin

Date: 01 December 2016

 

BAGHDAD — The government of Iraq is hoping that a new OPEC deal will help the war-weary country generate enough revenue to help pay for its costly, 2-year-old fight against the Islamic State group.

 

Iraq, whose oil revenues make up nearly 95 percent of its budget, has been reeling under an economic crisis since late 2014, when oil prices began their descent from a high of above $100 a barrel.

 

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  1. Iran welcomes OPEC production-cut decision

 

Media: Associated Press

Byline: N/A

Date: 01 December 2016

 

TEHRAN, Iran — Iran’s President Hassan Rouhani on Thursday welcomed an OPEC deal that cut the oil cartel’s output to push up crude prices.

 

Speaking in a provincial meeting, broadcast live on State TV Thursday, Rouhani called the decision “a positive development.”

 

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  1. OPEC to meet non-OPEC producers on December 10 in Vienna: sources

 

Media: Reuters

Byline: Rania El Gamal

Date: 03 December 2016

 

OPEC will meet non-OPEC countries to finalize a global oil limiting pact on December 10 in Vienna, two sources told Reuters on Saturday.

 

Two OPEC sources earlier said the meeting was due to take place in the Russian capital Moscow, but later said that plan had changed.

 

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