OIL OUTPUT CONSENSUS
PLATTS - The monitoring committee overseeing the OPEC/non-OPEC production cut agreement met this weekend in Russia with no shortage of advice from analysts, consultants and Twitter pundits on how to rally the oil market's flagging confidence in the deal.
With prices still languishing below the $55-$60/b that some ministers have said they are targeting, some market watchers say OPEC and its non-OPEC partners have no choice but to deepen cuts to make up for output gains from exempt Nigeria and Libya, as well as sliding compliance from other members.
At the opposite end of the spectrum, some experts say that the producer coalition would do well enough to leave the deal alone and let the market rebalance on its own, rather than fatten the coffers of US shale producers who are only too happy to steal any market share ceded by the OPEC/non-OPEC cuts.
Based on their limited public comments in recent weeks, key members Saudi Arabia and Russia are leaning towards keeping the status quo, with their ministers having said that it is still too early to call for deeper cuts, particularly with peak summer demand season just underway.
"It's too soon to shift strategy when the question all along has been how much progress can be made in Q3 to Q4," said Matthew Reed, an analyst with Middle East consultancy Foreign Reports who closely follows energy policy.
The committee, composed of ministers from Kuwait, Russia, Venezuela, Algeria and Oman, is tasked with reviewing compliance with the deal and monitoring market conditions.
It is empowered to recommend any changes to the deal as it sees fit, and with dramatic recoveries in output from Libya and Nigeria in recent months, along with Ecuador's declaration Tuesday that it was quitting the deal, speculation has been swirling about what the committee might do.
The committee's technical staff meets in Saint Petersburg on Saturday, followed by a ministerial meeting on Monday.
While the behind-closed-doors discussions are sure to be wide-ranging and perhaps even contentious, many analysts say that any changes to the deal, including output caps on Libya and Nigeria, as has been mooted, would likely not be declared until OPEC's next full meeting November 30 or at the very least not until after summer.
"My hunch is that OPEC [and] Saudi Arabia will wait until the July supply/demand balance figures are in before making any decisions," said Tamas Varga, an analyst for oil brokerage PVM Associates. "After all, the second half of the year should see a big jump in demand for OPEC crude."
Still, several Russia-based analysts indicated that Russia, while publicly supportive of the deal as it stands, expects Saudi Arabia, as OPEC's de facto leader, to respond to rising Libyan and Nigerian output.
"[Russian] oil companies are not very happy, but [energy minister Alexander] Novak is still peddling the issue that if it wasn't for the deal oil would be in the mid- $30s/b," said one Moscow-based analyst who spoke on condition of anonymity.
The agreement, which began January 1 and was recently extended through March 2018 with inventories still stubbornly high, calls on OPEC and 10 non-OPEC producers led by Russia to cut a combined 1.8 million b/d in supply.
SAUDIS WITH ROOM TO CUT
Consultancy Petroleum Policy Intelligence on Wednesday said Saudi Arabia was considering a 1 million b/d export cut, among other options, in response to Russia's demand that the kingdom back supply caps on Libya and Nigeria.
While many other analysts said that such a drastic move by the Saudis was unlikely, Sara Vakhshouri, who heads consultancy SVB Energy International, noted that the kingdom's production was still significantly above its production level in November 2014, when OPEC launched its pump-at-will market share strategy.
Saudi production was 9.97 million b/d in June, according to the latest S&P Global Platts OPEC survey, compared to 9.60 million b/d in November 2014.
That means Saudi Arabia theoretically has room to cut, should it decide to do so, said Vakhshouri, who is also a fellow at the Atlantic Council.
"Saudi petroleum officials on different occasions have indicated that they are not only interested in maintaining their market share but also to control and manage the market," she said.
If Saudi Arabia were to agree to a cut, the market's heavy/light imbalance could be exacerbated. The current oversupply in the oil market primarily rests in light, sweet barrels due to production growth in US shale, along with Libya and Nigeria.
Saudi Arabia and most of OPEC's key Middle East members, who have shouldered the bulk of the cuts, largely produce sourer and heavier grades, and the market in those crudes has tightened substantially from the deal.
As a result, the price spread between heavy and light crudes has tightened significantly, negatively impacting refinery margins in demand-thirsty Asia where refineries are optimized to run heavier grades.
If lighter grades become more price-competitive due to further Saudi cuts, "the battle for Asian market share will intensify," Varga said.
Alternatively, Saudi Arabia, which has continued to pump its lighter grades, even as they have cut output in its heavier crudes, could be persuaded to change its balance of production, Vakhshouri said.
SIGNALS ON LIBYA, NIGERIA
Output caps on Libya and Nigeria would help with the light, sweet glut and widen price differentials.
Neither country seems inclined to agree to production restraints, however, with the head of Libya's National Oil Company saying his country's humanitarian situation should be taken into account and Nigeria's oil ministry deeming its oil recovery in recent months as "fragile."
But analysts say the market will be looking for signs that the monitoring committee is at least considering its options on how to absorb any further gains from Libya and Nigeria, without adding to the oversupply.
Representatives of both countries have been invited to the meetings to explain their production outlook.
"It is increasingly looking like their time is up from being exempted from the deal," said Joe McMonigle, an analyst with Hedgeye. "There is a way to get them on board by providing some escape hatch if there's further disruption."
As for Russia, experts say they do not expect the country to agree to any further cuts beyond the 300,000 b/d it is committed to.
Alexander Kornilov, an analyst at Aton Capital, said many Russian oil companies that have been compelled to curb their production due to the agreement are not convinced of the cuts' effectiveness.
"I think they also feel that it's a losing proposition and that shale is just going to become more and more competitive and you will just keep losing market share," he said, adding that the Russian companies are likely to abide by the deal for its current timeframe, but it would be much harder to secure their cooperation if the deal had to be extended further.
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NPD - Preliminary production figures for September 2017 show an average daily production of 1 772 000 barrels of oil, NGL and condensate, which is a decrease of 171 000 barrels per day compared to August.
Средняя цена на нефть Urals за период мониторинга с 15 сентября по 14 октября 2017 года составила $55,55881 за баррель, или $405,6 за тонну.
Brent crude futures, the international benchmark for oil prices, were at $58.16 at 0643 GMT, up 28 cents, or 0.5 percent from their last close - and almost a third above mid-year levels. U.S. West Texas Intermediate (WTI) crude futures were at $52.03 per barrel, up 15 cents, or 0.3 percent, and almost a quarter above mid-June levels.
Александр Новак отметил рост основных показателей всех отраслей энергетики в прошлом году: «Мы имеем рекордные показатели за прошлый год по добыче нефти, угля. Идёт рост добычи и экспорту газа, в том числе в Европу на уровне 15 процентов. По углю мы наблюдаем рост добычи даже больше уровня прошлого рекордного года. Также отмечается рост производства электроэнергии на 2%, что говорит об оживлении экономики».