Posts Tagged ‘OPEC’

For Europe, Trump Is a Blessing in Disguise

February 20, 2018

His policies promote energy independence and balance between France and Germany.

French president Emmanuel Macron welcomes German Chancellor Angela Merkel at the Elysee Palace in Paris on Jan. 19.
French president Emmanuel Macron welcomes German Chancellor Angela Merkel at the Elysee Palace in Paris on Jan. 19. PHOTO: LUDOVIC MARIN/AGENCE FRANCE-PRESSE/GETTY IMAGES

The Trump administration is turning out to be a blessing in disguise for the European Union. While many of the president’s rhetorical statements offend European sensibilities, and while dramatic acts like the withdrawal from the Paris climate accord prompt talk of a “crisis” in trans-Atlantic relations, the actual consequences of the administration’s policies are shoring up Europe’s foundations in surprising ways.

A year ago, fears that an allegedly pro-Russia Trump administration would ditch the North Atlantic Treaty Organization and throw Europe to the wolves had delicate Europeans trembling. These days those fears seem quaint. But few in Europe have yet grasped how anti-Russian and pro-European the Trump foreign policy is at its core.

This is partly because European reflexes, especially German ones, are so often nonstrategic. Fine words and noble resolutions are mistaken for hard facts, and the wrapping paper matters more than the gift.

When many Europeans—and more than a few Americans—hear the word “fracking,” for example, they don’t think of the spear tip of an American energy offensive that limits Russia’s geopolitical ambitions while creating the conditions for renewed European prosperity. And when they hear about American plans to rearm and modernize its nuclear arsenal, they instinctively think about the dangers of American militarism—overlooking Moscow’s hostile military buildup that endangers the European countries closest to Russia.

Energy is the place to begin. The vast American oil and gas resources being unlocked by unconventional (and rapidly improving) techniques like fracking are more than a domestic economic bonanza. They are a key instrument of American foreign policy. These resources will not only deprive Middle Eastern countries of the financial capacity too many have used to underwrite radicalism and terrorism; they force Russia, whose economy is greatly dependent on oil exports, to count the cost of every bullet fired in Ukraine and every mercenary deployed to Syria.

Fracking frustrates Vladimir Putin more than sanctions, and much more than harsh rhetoric at the United Nations. When the price of oil is $150 a barrel and every country in Europe is desperate for energy, Russia casts a long shadow over the EU. When oil is at $60 a barrel and supplies are plentiful, Russian leverage is dramatically diminished.

But there is another way in which fracking helps the EU. The EU is a net importer and consumer of energy; high oil and gas prices dampen European growth. The high monopoly prices that characterized the age of the Organization of the Petroleum Exporting Countries acted as a deadening tax on European economic activity. The lower prices delivered in part by fracking amount to a giant tax cut for the European economy, one that is especially welcome in southern European countries like Greece and Italy that are still struggling with the aftermath of the euro crisis.

Environmentalists wince, but Mr. Trump’s pedal-to-the-metal approach to energy production is better calculated to promote growth and cohesion in the eurozone than anything else the U.S. could do, because faster economic growth will reduce the political strains that corrode the legitimacy of EU institutions. If next month’s Italian election results in a pro-Europe government, Brussels should send champagne to the White House.

There’s more. Over time, the Trump administration’s proposed military buildup and nuclear modernization will deter Russian aggression and reduce Moscow’s ability to intimidate its neighbors. A stronger America means a stronger NATO and a more stable eastern Europe. If the U.S. were, as some wish, to reduce military spending while focusing more on Asia, European security would suffer regardless of the number of supportive speeches delivered by American diplomats.

Not everyone in Europe hates the administration. Paris, which traditionally has a less sentimental view of geopolitics than Berlin, sees a historic opportunity. Key Trump policies like promoting European self-reliance in defense, a tougher anti-Iran approach to the Middle East, and an emphasis on military power and security mesh better with French priorities than with German ones. While Berlin wrings its hands over the administration’s evident skepticism about Germany’s values agenda, President Emmanuel Macron hopes to replace a weakened Chancellor Angela Merkel as America’s key European partner.

For the French, even Mr. Trump’s vices have their uses; his unpopularity in Europe and apparent retreat from world leadership create vacuums France can help fill. Here again, the Trump administration may be solving an important European problem. Germany’s growing power and France’s weakness threatened the Franco-German balance to which the EU owes much of its strength.

Mr. Trump is not about to become a European hero, but he offers Europe a historic opportunity.


Saudi Arabia Is Taking a Harder Line on Oil Prices

February 19, 2018


By Grant Smith

  • Al-Falih says cuts should continue even if there’s a shortage
  • Kingdom needs higher prices to implement economic reforms: RBC

For decades, Saudi Arabia was the voice of moderation within OPEC, pushing back against the urging of members like Venezuela and Iran for higher oil prices. That role seems to be shifting.

Thanks to OPEC-led production cuts, crude prices are double their level two years ago and bloated oil stockpiles are almost back to normal. Yet Saudi Energy Minister Khalid Al-Falih wants to go further.

 Image may contain: 1 person
 Saudi Energy Minister Khalid Al-Falih. Credit Getty Images

Producers should keep cutting for the whole year, even if it causes a small supply shortage, Al-Falih said. “If we have to overbalance the market a little bit, then so be it,” he told reporters in Riyadh last week.

The changing stance reflects the unprecedented pressures Saudi Arabia faces as Crown Prince Mohammed Bin Salman embarks on a program of sweeping economic reforms, including the potentially record-breaking initial public offering of its state oil company.

“If you’re Mohammed Bin Salman, and trying to radically reinvent your country” then “you need a certain price to make it work,” said Helima Croft, head of commodity strategy at RBC Capital Markets LLC.

Previously content with oil at $60 a barrel, Al-Falih is now seeing $70 as the level where crude prices should trade, according to a person familiar with the matter, who asked not to be identified because the information was private.

For the past year, the Organization of Petroleum Exporting Countries and Russia — once fierce oil-market rivals — have led a coalition of 24 producers in output cuts aimed at clearing the supply glut unleashed by U.S. shale-oil drilling. Their objective of reducing oil inventories to their five-year average is finally in reach, but the two energy giants now suggest modifying that goal as they encourage fellow producers to keep supply constrained.

Changing Targets

The motivation could simply be that the Saudis “recognize the limitations of the inventory target” which has been skewed by years of oversupply, said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA. To “err on the side of rebalancing” will ensure that the process is complete.

Yet going beyond the initial targets, and keeping prices supported, also serves a number of internal purposes for the kingdom.

Higher crude prices could help secure a valuation for Saudi Aramco closer to the $2 trillion envisaged by Prince Mohammed, a figure some analysts consider unrealistic.

The extra revenues may also allow more gradual reductions in the generous subsidies and public-sector jobs that underpin the Saudi economy. As prices rebounded, Prince Mohammed already retreated on some attempts at austerity in the face of discontent last month, renewing state handouts as he tries to win popular support for longer-term transformation plans.

The Saudis are seeking “a bridge price, to get you where you’re comfortable with deeper reform,” said RBC’s Croft. “If you’re willing to start a revolution in your country, and shake it to its core, is an oil price of $27 really where you want to be?”

Dove to Hawk

A more hawkish Saudi stance on prices is a sharp contrast with their attitude in previous years.

In the 1970s, then-minister Sheikh Ahmad Zaki Yamani warned fellow OPEC members that their wave of oil-price hikes would backfire. He was proved right as consuming nations developed energy reserves in places like Alaska and the North Sea and the group’s market share stagnated for years.

When oil surged to almost $150 in 2008, attempts by Saudi Oil Minister Ali al-Naimi to cool the rally also faced opposition from other OPEC nations eager to enjoy soaring revenues. Prices slumped the following year during the Great Recession.

The dynamic is showing some signs of reversing. After Brent crude shot above $70 in late January, Oil Minister Bijan Namdar Zanganeh of Iran — an OPEC producer that often used to agitate for higher prices — said that $60 was sufficient.

Image may contain: 1 person

Iran’s Oil Minister Bijan Namdar Zanganeh

Risky Strategy

Emboldened by the success of their strategy so far, the Saudis are now pursuing price levels that will ultimately lead to failure, said Eugen Weinberg, head of commodity market research at Commerzbank AG in Frankfurt.

Crude’s recovery is stimulating record shale-oil output from the U.S., which is on track to surpass both Saudi Arabia and Russia as the world’s biggest crude producer this year, according to forecasts from the Department of Energy. A new flood of supply could easily send prices lower again, according to Weinberg.

“The Saudis got overconfident,” Weinberg said. “Their goal has become higher prices, no matter the cost. But that won’t work in a market like this.”

— With assistance by Wael Mahdi, and Javier Blas

IEA Says OPEC Has Almost Cleared Oil Glut But Faces Shale Danger

February 13, 2018


By Grant Smith

  • Surplus supply has shrunk ‘dramatically,’ monthly report shows
  • Non-OPEC output, led by U.S., is seen growing more than demand
Photographer: Brittany Sowacke/Bloomberg

OPEC and its allies have almost achieved their goal of clearing an oil glut, but their efforts could be derailed by rising supplies from the U.S. and other rivals, the International Energy Agency said.

Oil stockpiles in developed nations fell the most in more than six years in December as supply cuts by OPEC and Russia took effect. The surplus is also being cleared by higher consumption, with the agency boosting its forecast for global demand growth in 2018 by about 100,000 barrels a day to 1.4 million a day.

Yet OPEC’s strategy could be backfiring, as the increase in prices to a three-year high stimulates more supply from America. U.S. output will soon surpass that of the cartel’s biggest producer, Saudi Arabia, and may overtake Russia as global leader by the end of the year, according to the IEA.

“With the surplus having shrunk so dramatically, the success of the output agreement might be close to hand,” said the Paris-based agency, which advises most of the world’s major economies. Nevertheless, the “main message” remains that “fast-rising production in non-OPEC countries, led by the U.S., is likely to grow more than demand.”

The Organization of Petroleum Exporting Countries and Russia, once fierce market rivals, forged an alliance in late 2016 to offset the oil glut unleashed by the advent of the U.S. shale industry.

After a year of output cuts, stockpiles in industrialized nations have shrunk to the lowest since November 2014. They were about 52 million barrels above the five-year average in December, a drop of 80 percent from a year earlier, the IEA said.

OPEC’s implementation of pledged cuts was its strongest since the deal came into force, with the group reducing output by 37 percent more than it promised, according to the IEA. Compliance was given a boost by Venezuela, whose oil industry has been crippled by years of under-investment and economic decline.

Global inventories may stop falling in the early part of this year with the onset of new supplies, the agency said. Having cut costs during a three-year market slump, U.S. shale companies are able to deliver even more oil as recovering prices fund new drilling, it said. The nation’s output could climb enough this year to satisfy the expected increase in global consumption, according to the IEA.

Oil futures traded near $60 a barrel in New York on Tuesday. Prices fell last week, continuing their retreat from the three-year high of $66.66 reached in late January.

Saudi Arabia calls for extending non-OPEC cooperation

January 21, 2018


© AFP/File | Saudi Energy Minister Khaled al-Faleh said a new framework for cooperation between OPEC and non-OPEC oil producers might differ from the current agreement

MUSCAT (AFP) – Saudi Arabia’s Energy Minister Khaled al-Faleh on Sunday called for extending cooperation between OPEC and non-OPEC oil producers beyond 2018 after a deal to shore up crude prices.”We should not limit our efforts to 2018. We need to be talking about a longer framework for our cooperation,” Faleh said before a meeting between OPEC and non-OPEC countries in Muscat.

This is the first time OPEC kingpin Saudi Arabia explicitly calls for extending a 2016 deal between oil producers to cut back production to combat a global oil glut.

OPEC and non-OPEC countries signed a landmark agreement in November 2016 to cut output by 1.8 million barrels per day to fight huge oversupply and lift sagging crude prices.

That deal was initially for six months, but the 14-member cartel and 10 independent producers have since extended it until the end of this year.

“I am talking about extending the framework that we started ?- which is the declaration of cooperation -? beyond 2018,” Faleh told reporters.

But Faleh said the new framework for cooperation might differ from the current agreement and its production quotas.

“It does not necessarily mean sticking barrel by barrel” to the same agreement, which has helped a healthy rebound in oil prices to around $70 a barrel.

It would mean “assuring stakeholders, investors, consumers and the global community that (the agreement) is here to stay”.

It would send the message that “we are going to work together not only with the 24 countries, but inviting more and more participants,” he said.

Faleh said oil producers have not yet achieved their target of reducing world stocks to normal levels and striking a balance between supply and demand.


US oil output is booming and seen outpacing Saudis, Russia

January 19, 2018

Crude production in US at highest level in 50 years, putting it ‘neck-and-neck with Saudi Arabia’

By AFP and The Associated Press

This June 27, 2017, file photo shows an oil rig at sunset in Midland, Texas. (Steve Gonzales/Houston Chronicle via AP, File)

This June 27, 2017, file photo shows an oil rig at sunset in Midland, Texas. (Steve Gonzales/Houston Chronicle via AP, File)

PARIS — A global energy agency says that US oil production is booming and is forecast to top that of heavyweights Saudi Arabia and Russia this year.

The International Energy Agency said in its monthly market report released Friday that US oil production, which has already risen to its highest level in nearly 50 years, will push past 10 million barrels a day as higher prices entice more producers to start pumping.

It says that “this year promises to be a record-setting one for the US.”

Meanwhile, global growth in demand for oil is forecast to remain unchanged at 1.3 million barrels a day. That’s mainly due to the impact of higher oil prices and as consumers switch to other types of energy, like natural gas.

US crude production levels put “it neck-and-neck with Saudi Arabia, the world’s second largest crude producer after Russia,” the IEA said.

“Relentless growth should see the US hit historic highs above 10 million bpd, overtaking Saudi Arabia and rivaling Russia during the course of 2018 -– provided OPEC/non-OPEC restraints remain in place,” it said.

A global supply glut pushed oil prices as low as $30 per barrel at the start of 2016.

But producing nations — both inside and outside the OPEC oil cartel — struck a deal at the end of 2016 to cut back production and drive prices higher.

Geopolitical tensions and a reduction in oil stocks have also contributed to the recovery.

Crude recently rose above $70 per barrel for the first time since 2014 after OPEC and non-OPEC countries agreed to extend their combined cutbacks until the end of this year.

Rising prices have, in turn, made it more attractive for shale companies to increase drilling.

And since the United States is not a party to the deal, its shale production can continue uninhibited.

“US growth in 2017 beat all expectations … as the shale industry bounced back, profiting from cost cuts, (and) stepped up drilling activity,” the IEA said.

“Explosive growth in the US and substantial gains in Canada and Brazil will far outweigh potentially steep declines in Venezuela and Mexico,” it said.

“The big 2018 supply story is unfolding fast in the Americas,” the IEA said.

Shale production is controversial, because in order to extract oil and gas, a high-pressure mixture of water, sand and chemicals is blasted deep underground to release hydrocarbons trapped between layers of rock.

And environmentalists argue that the process — known as fracking, or hydraulic fracturing technology — may contaminate ground water and even cause small earthquakes.

Turning to OPEC output, the IEA said that there was “no clear sign yet of OPEC turning up the taps to cool down oil’s rally.”

In its own monthly market report published on Thursday, the Organization of Petroleum Exporting Countries had said that the global oil market was moving closer to reaching a healthy balance between supply and demand.


Venezuela’s Oil Production Is Collapsing — Increasing the odds of a debt default — Already struggling to pay interest and principal on its $60-billion foreign debt

January 18, 2018

Sharp drop in output increases the odds of a debt default, worsens economic crisis

CARACAS, Venezuela—Venezuela’s oil output is collapsing at an accelerating pace, deepening an economic and humanitarian crisis and increasing the chances the country will default on its debts.

Production fell 216,000 barrels a day to 1.6 million in December compared to November, the 15th consecutive monthly decline, according to data released Thursday by the Organization of the Petroleum Exporting Countries.

Image result for Venezuela oil industry deteriorates, photos

Venezuela’s decline in output accelerated rapidly in the last quarter of the year. During 2017 as a whole, it fell 649,000 barrels a day, a decline of 29%.

This ranks among the deepest declines in the industry’s recent history. Russia’s output slid 23% during the fall of the Soviet Union, and Iraq’s output dropped by the same share after the 2003 U.S. invasion, according to data from OPEC and BP Statistical Review.

The decline has been caused by a deep economic crisis and widespread corruption and mismanagement, compounded by a purge of state-run Petroleos de Venezuela SA by President Nicolás Maduro that has paralyzed the oil giant. U.S. sanctions have scared off some of the last remaining investors.

“In Venezuela there is no war, nor strike, but what’s left of the oil industry is crumbling on its own,” said Evanán Romero, a former PdVSA director.

Since the country exports little else, Venezuela’s state-led economy relies on oil exports for 95% of its hard currency, according to the latest official data. That means the output decline will add more pressure to the government, which has drastically cut back on imports of everything from machinery to food and medicines to make ends meet. The economy has shrunk an estimated 40% in the past four years. Malnutrition is spreading among the young and elderly while health officials report a resurgence of illnesses ranging from malaria to diphtheria.

Venezuela is also entering the world’s first episode of hyperinflation in a decade. Prices rose an estimated 2,600% last year, the country’s National Assembly estimates. Nearly one in four factories didn’t reopen after Christmas, according to the local industry association. And at least four people have died in looting outbreaks across the country in recent weeks.

In Other News

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  • T. Boone Pickens Calls It Quits on Energy Trading

This week, the state oil company’s new chief, National Guard Gen. Manuel Quevedo, blamed the downturn on sabotage and terrorist attacks by the opposition, without providing any evidence. He said production has stabilized and will grow to 2.5 million barrels per day this year.

Most analysts, however, expect Venezuela’s production to continue falling, adding to the country’s economic woes.

By this year’s end, output could fall to 1.3 million barrels a day, according to Francisco Monaldi, a Venezuelan energy expert at Rice University.

“The only discussion right now is how much is it going to decline by. There is no talk of a turnaround,” said Luisa Palacios, analyst at consultancy Medley Global Advisors in New York.

The output decline means Venezuela has been the only major oil producer to not benefit from rising crude oil prices. The value of the Venezuelan oil export basket rose 25% last year on the back of stronger global demand and shrinking inventories. But this windfall was wiped out by lower output and the rising cost of oil products imported by PdVSA to aid its operations.

Brokerage Torino Capital forecasts that the value of Venezuelan oil exports will fall about three billion this year to $26.5 billion. As recently as 2012 the country earned $93 billion from oil exports.

A boy, his clothes saturated with oil, sits in a boat at the fishing town of Cabimas. Photo: FABIOLA FERRERO FOR THE WALL STREET JOURNAL

The country has already been struggling to pay interest and principal on its $60-billion foreign debt. A full-blown default would deepen the country’s woes, potentially putting oil sales at risk.

PdVSA and the central government are in default on more than $700 million of bond payments. The state oil company hasn’t made any interest payments for a month, raising fears that creditors could start seizing oil shipments as compensation.

Last week, a tanker carrying Venezuelan crude was detained in the Caribbean island of Curaçao at the request of an unidentified group of investors seeking $30 million in back payments from Venezuela, according to diplomats familiar with the matter

“If Venezuela’s oil shipments become a target, that would be the worst possible scenario for the country’s oil industry,” said Artyom Tchen, an Oslo-based oil analyst at consultancy Rystad Energy.

The crisis has created a vicious cycle of underinvestment and falling output, which cripples the economy further. PdVSA’s operational spending has fallen two thirds from 2014 to 2016, according to the latest official data.

The cash crunch comes as Mr. Maduro faces elections sometime this year. As oil production falls, it will become increasingly difficult for the president to maintain handouts of imported food to supporters, which has kept his ruling party in power amid an economic meltdown, said Siobhan Morden, strategist at Nomura Securities.

Part of the problem is that some 1.3 million barrels a day of Venezuelan oil is already spoken for between the domestic market and pre-paid supply and debt deals with allies Russia, China and Cuba, said Mr. Monaldi. That leaves precious little to sell in the open market.

Making matters worse, Mr. Maduro’s government jailed almost 70 senior managers on graft allegations in the past three months, appointing half a dozen generals with no industry experience to run the firm.

Mr. Monaldi says the purge is merely a political show to rid the company of the last appointees of Mr. Maduro’s predecessor, which will hasten the company’s decline.

“The top people in PdVSA are gone or in prison while the new military guys and the National Guard clearly don’t understand anything,” he said.

Multinational firms partnered with PdVSA in southern Venezuela, home to the world’s biggest oil reserves in the Orinoco Oil Belt, have cut spending to a minimum because of overdue bills, red tape and high taxes, say oil industry sources.

“International operators have essentially zero appetite for putting any additional investment dollars into Venezuela under current conditions,” said Pavel Molchanov, oil analyst at brokerage Raymond James.

Write to Anatoly Kurmanaev at and Kejal Vyas at

Oil producers should commit to cuts until market reaches balance says OPEC president

January 11, 2018

UAE Energy Minister Suhail Al-Mazrouei believes the oil market needs further correction. (Reuters)

ABU DHABI: Oil-producing countries should remain committed to current production limits for the rest of 2018, or even consider further cuts, until the global market reaches balance, according to Suhail Al-Mazrouei, the UAE energy minister.

He was speaking for the first time in his capacity as president of OPEC.
“I have no doubt that the market needs further correction. We still have more than 100 million barrels that needs to be taken care of,” he said at the UAE Energy Forum in Abu Dhabi.
“There is positive market sentiment we are seeing today. The market is balancing, but the issue is timing and how long it will take,” he said.
Last year OPEC and 10 other oil exporters agreed to continue output limits into 2018, with a commitment to review the deal in June.
“But this is not ‘mission accomplished.’ OPEC is committed to the deal for a full year,” Al-Mazrouei insisted.
He was confident that OPEC and other oil exporters — led by Russia, the world’s biggest oil producer — could maintain the alliance that has helped the oil price recover from the big declines of 2014.
The price of Brent crude rose marginally as he was speaking, at $69.32 per barrel just slightly below the psychologically important $70 level.
“This group (the OPEC and non-OPEC alliance) started something never attempted before, and I believe compliance will continue this year. OPEC will continue to be a strong organization. The phenomenon of getting others to join is something that is of increasing interest. Many other countries have expressed interest in joining OPEC,” he added.
Some analysts have recently forecast that geopolitical shocks could force the oil price to spike above $80 a barrel, but Al-Mazrouei said he was not worried about the effects of short-term shocks from producers like Venezuela and Iran.
“We can always help each other. For example, when Libya was experiencing problems a few years ago we came together. We will be responsive to countries that are experiencing exceptional problems,” he said.
On the US shale industry, which some experts predict will ramp up production as the price recovers and the US economy gets fiscal stimulus from President Trump’s tax reform, he said: “The American people chose their president and we respect that. The US market has been supportive of the oil industry. The only issues with shale oil is the pace of production.”
Al-Mazrouei added that US investors were increasingly looking at the economics of the shale industry, rather than simply increasing production.
“Investors are seeking a good return,” he said.
Asked if he thought Saudi Aramco would complete its initial public offering in 2018, as Saudi Arabian policymakers have pledged, he said: “I trust what the leadership in Saudi Arabia says it will do. They committed to raise fuel prices and bring in VAT, and they have done it. The Vision 2030 is a reality, people are excited about it.”
The forum, organized by the Gulf Intelligence information firm and attended by 200 industry experts, agreed that the Aramco IPO would take place this year. In an electronic poll, 65 percent said that it would happen in 2018.
In a similar vote, 62 percent of participants predicted that the average price of oil would be in the $60-70 range this year, with 20 percent saying it would be more than $70.

Iran Unrest Continues to Buoy Crude Prices

January 3, 2018

Market concerned that antigovernment protests could result in crude supply disruptions

LONDON—Oil prices ticked up Wednesday morning on the back of ongoing antigovernment protests in Iran.

Brent crude, the global benchmark, was up 0.2%, at $66.68 a barrel on London’s Intercontinental Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.2% at $60.49 a barrel.

Antigovernment demonstrators have taken to the streets in cities across Iran over the past week to voice anger over the country’s economic woes. The protests, which have left more than 20 people dead, have reignited a geopolitical risk premium in global oil markets amid concerns the civil unrest could result in crude supply disruptions out of the Islamic Republic.

The “potential escalation out of Iran” is supporting oil prices, said Ole Hansen, head of commodity strategy at Saxo Bank.

“With geopolitical risk driving the market, the appetite of selling ahead of a potential spike is limited,” he added.

So far, “protests in Iran have had no impact on the country’s oil production or oil shipments,” according to analysts at Commerzbank.

But they cautioned the situation could change if the U.S. were to impose fresh sanctions on the Iranian regime or dismantle the 2015 international agreement to curb Iran’s nuclear program.

“This justifies a certain risk premium on the oil price, though this should already be more than sufficiently reflected in the current price level,” the Commerzbank analysts wrote in a note Wednesday.

The unrest in Iran comes as oil prices have been steadily climbing in recent months, helped by geopolitical risk throughout the Middle East–including in Iraq–as well as declining global inventories and OPEC’s continued efforts to curb production.

The Organization of the Petroleum Exporting Countries–of which Iran is the third-largest member–and 10 producers outside the cartel, including Russia, agreed in November to extend a deal to cut crude output by nearly 2% through the end of next year. The original accord was first struck a year ago as part of strategy to rein in the global supply glut and boost prices.

Crude prices also faced some downward pressure Tuesday, as the Forties Pipeline System in the North Sea came fully back online. The pipeline, which transports 450,000 barrels of North Sea oil a day, was shut down in mid-December due to a hairline pipe crack, tightening supply and buoying prices.

Among refined products, Nymex reformulated gasoline blendstock–the benchmark gasoline contract–was down 1.82%, at $1.76 a gallon. ICE gasoil, a benchmark for diesel fuel, changed hands at $600.50 a metric ton, up 0.59% from the previous settlement.

Write to Christopher Alessi at

Oil Resurrection Sets Stage for Another OPEC-Shale Clash in 2018

December 29, 2017


By Heesu Lee

 Updated on 
  • WTI, Brent up more than 11% this year; set for 2nd annual gain
  • OPEC curbs drive price gain as threat of U.S. output persists

Oil’s revival from the biggest crash in a generation persisted, with prices set for a second annual gain after weathering everything from hurricanes and Middle East conflict to the tussle between OPEC and U.S. shale.

Benchmark futures are up more than 11 percent in 2017, after going into a bull market in September. While gains were driven by glut-shrinking output cuts by the Organization of Petroleum Exporting Countries and its allies including Russia, geopolitical tensions in the Middle East as well as pipeline disruptions from the North Sea to Canada and Libya have also helped. In 2018, investors will watch if U.S. output undermines OPEC’s curbs.

Speculation is rising that American drillers will put more rigs to work as oil strengthens, with shale growth driving forecasts of record U.S. supply in 2018. That could act counter to plans by producers including Saudi Arabia, who have pledged to extend production curbs through end-2018 to wipe out a global glut. After Hurricane Harvey shut Gulf Coast refiners at the end of August and hurt prices, violence in Iraq and a pipe crack in the U.K. have helped buoy crude.

“The key driver for the oil market this year has been that the OPEC and Russian production cuts were introduced, complied with and extended,” said Ric Spooner, a Sydney-based analyst at CMC Markets. “This has allowed the market to reduce inventory despite production increases in the U.S., Libya and Nigeria.”

West Texas Intermediate for February delivery was at $60.22 a barrel on the New York Mercantile Exchange, up 38 cents, at 7:31 a.m. in London. Total volume traded was about 50 percent above the 100-day average. Front-month prices are 12 percent higher this year, after rising 45 percent — the most since 2009 — in 2016.

See also: Five Oil Signals to Watch as 2018 Pits OPEC Against Shale

Brent for March settlement added 42 cents to $66.58 a barrel on the London-based ICE Futures Europe exchange. The February contract expired Thursday, after rising 28 cents to $66.72. The benchmark for more than half the world’s oil has gained 17 percent this year, after climbing 52 percent in 2016. It was at a premium of $6.34 to March WTI.

Oil’s trading at the highest level since mid-2015 after WTI breached above $60 a barrel for the first time in more than two years. The benchmark traded at an average price of about $51 this year. Nationwide stockpiles fell 4.6 million barrels last week to the lowest level since October 2015, according to the Energy Information Administration Thursday. That beat the 3.75 million average estimate in a Bloomberg survey of analysts.

“The tug-of-war between OPEC and the U.S. will continue to pressure oil from trading above $60 a barrel in 2018,” said Kim Kwangrae, a Seoul-based commodities analyst at Samsung Futures Inc. “Like we’ve seen this year, geopolitical risks will be the key factor going forward for oil to breach $60.”

Following an explosion on Tuesday, Waha Oil Co. is working to repair the pipeline that carries crude to Libya’s Es Sider port, the North African nation’s biggest export terminal, while a major U.K. North Sea pipeline is nearing a return to full service after an outage this month.

Oil-market news:

  • Jobs are returning to the shale patch, albeit at a more subdued pace compared with the go-go days of 2014.
  • The Trump administration is rolling back offshore drilling rules put in place after the 2010 Deepwater Horizon disaster killed 11 workers and spewed millions of barrels of oil into the Gulf of Mexico.

Saudi Arabia and Russia: May the force be with them

December 27, 2017
The turnout has been strong at box offices for the release of “The Last Jedi,” the latest instalment in the “Star Wars” series. In the spirit of the sci-fi classic, I think the earlier “Star Wars: Episode IV — A New Hope” can be best applied to what transpired in the world of oil in 2017.
It was Obi-Wan Kenobi who declared to Anakin Skywalker, “Goodbye old friend, and may the force be with you.” However, in the case of the two leading roles played by Saudi Arabia and Russia, we need to alter the narrative just slightly and say, “Hello new friend, may the force be with us.”
With the international price of oil above $60 a barrel, Khalid Al-Falih and Alexander Novak — the respective energy ministers of the two largest oil producers — silenced critics and can claim victory, even if it may not be a permanent one.
At the last meeting of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC ministers over their historic production-cuts agreement, there was talk that Russia was becoming increasingly restless since the price recovery had come too far, too fast — and, in turn, was assisting US producers.
The chatter at OPEC HQ was that, despite the strategic tilt by Saudi Arabia toward Russia, it would be the market share of Russia’s energy companies that would take top billing in Moscow. A public split, OPEC watchers noted, was a distinct possibility.
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This tension provided some drama but those betting on a breakup were left disappointed. Having followed Al-Falih in his previous role as CEO of Saudi Aramco and now minister of not only energy but also industry and mining, I can confidently say he is a powerful but low-key force. He emerged after 48 hours of meetings, beaming with pride. As the rotating president of OPEC, he not only vowed to keep this disparate group of 21 producers on board for another 12 months but also took the role as co-chairman of the committee to monitor their progress.
Al-Falih declared on Nov. 30 that Saudi Arabia and Russia will do whatever it takes to rebalance the market, even if that means not making any adjustments to their game plan of removing 1.8 million barrels a day of supply. In an interview after their joint press conference, Al-Falih’s Russian counterpart made it clear that he bargained for flexibility.
“When we see that rebalancing is happening, when (the oil price) moves faster, we always have the option to sit down together, look at the market’s fundamentals and look at what adjustments we need to make,” said Novak.

The two countries have enjoyed stellar success with the OPEC production-cuts agreement, bringing ‘A New Hope’ to the global oil market — but 2018 will have its own challenges.

John Defterios

Right now, it is fair to say that the force is with them — but the reality is much more complex according to Christof Rühl, the global head of research at the Abu Dhabi Investment Authority, the sovereign fund, who formerly served in a similar role at oil giant BP.

“It is not clear if the glue of oil politics will be strong enough to keep them together through 2018,” he told me. This is mainly due to domestic politics and business back in Russia.
“I do know that from the perspective of Russian companies because of their tax system, there is no advantage of higher prices. They care much more about volumes than about prices,” he added.
Rühl described 2018 as a pivotal year because many major projects for Russian oil companies will be coming online.
This is further complicated by year-end research from OPEC, representing the producers, and the International Energy Agency on behalf of the consuming nations. Both said the glut of oil is being mopped up, but acknowledged that if prices stay at this level, US production will surge above 10 million barrels a day and allow it to at least match the levels of Saudi Arabia and Russia. This will not go down well with producers in Russia, so ultimately President Vladimir Putin may need to choose between keeping the deal intact or letting oil companies open the taps as they have done in the past.
Next year is equally as challenging for Saudi Arabia, having declared plans to float 5 percent of its state oil giant Saudi Aramco to raise $100 billion and land a lofty valuation of $2 trillion. To have a shot at success, energy strategists say, protecting the oil price at $60 a barrel is essential.
“I think they want $60 and more. Because if you are an investor and you start from $40 and you want to offer a valuation for something, it’s not the same as $60, irrespective of the outlook for the future,” said Carole Nakhle, founder of Crystol Energy, a consultancy.
Observers of this energy partnership need to chalk one up for the persistence, determination and steady stewardship of Energy Minister Al-Falih. Now the hard part: Making a call on whether the force will be with him and his Russian counterpart next year as well.
• John Defterios is CNNMoney Emerging Markets Editor and presenter of CNN Marketplace Middle East.