Saudi Arabia Lays Down the Law to the Oil Market

[ceo_energemsier + 1,818]

Saudi Arabia Lays Down the Law to the Oil Market

 

 

(Bloomberg Opinion) -- Saudi Arabia called out the cheats at yesterday’s OPEC meeting — the countries that hadn’t fully reduced oil output in May as agreed — and extracted promises that they would compensate with even deeper reductions in the third quarter. Now the kingdom faces the group’s perennial problem of enforcing those promises.

The meetings of the Organization of Petroleum Exporting Countries and the bigger OPEC+ group, which includes Russia and nine other countries, were the shortest and least controversial since the latter collective was formed in 2016. It’s not that there was no drama; it just all took place in the days before the virtual gatherings.

The drama centered around the failure of key countries to make all the output cuts they had promised when the group met by videoconference the previous month. Of the 20 countries participating in that deal, 19 agreed to reduce their production by 23% from agreed-upon baselines. Only Mexico held out, and eventually the others gave in to its demand for a smaller reduction.

When the May production estimates started coming in, however, it became abundantly clear that several countries hadn’t fulfilled their promises. That’s not unusual — but what followed was.

 

Saudi Arabia was done turning a blind eye to the cheats. It spent a week threatening and cajoling them. In the end, as well as agreeing to extend current output targets through July, the other countries promised to compensate for the barrels they failed to remove in May, and would fail to cut in June, by making deeper cuts in the third quarter.

Four countries, in particular, were held to account — Iraq, Nigeria, Angola and Kazakhstan. Iraq and Nigeria have long histories of failing to make the cuts they promised under previous OPEC+ agreements. Angola’s production last year was well below its target, and Kazakhstan met its obligations on average over the period, thanks to maintenance and unexpected outages at its biggest oil fields. But neither cut quite as much as they had pledged last month.

Iraq especially angered the Saudis by admitting that, not only had it failed to meet its obligations in May, but it wouldn’t be able to get output down to its target level  until the end of July. On the other hand, Nigeria had insisted that its production numbers were reported incorrectly by the secondary sources that OPEC relies on to monitor production, but its oil minister eventually admitted in an Instagram post that the country had cut production by 216,000 barrels a day — 52% of the reduction it had promised.

All four countries eventually agreed to the principle of making additional compensatory output cuts in the coming months. The real tests will be whether they do, and how Saudi Arabia reacts if they don’t.

Back in March, when Russia refused to accept deeper output cuts championed by Saudi Arabia, the kingdom threatened to bring the whole OPEC+ edifice crashing down, rather than go on without Russia’s full participation. Russia called Riyadh’s bluff, and the Saudis proceeded to boost their oil production to more than 12 million barrels a day in early April — just as the destruction of global oil demand by the Covid-19 pandemic reached its peak.

The kingdom seems to have threatened to do the same again, if it didn’t get its way ahead of Saturday’s meetings. But Iraq and Nigeria learned from Moscow’s mistake — at least well enough to say the right things to appease Saudi Arabia.

Nigeria may be able to meet the new goal, as it will be aided in the task: Maintenance being conducted on at least one of its major offshore oil fields means production will run at reduced rates and shut down completely for several days. Iraq, though, will find it more difficult. In fact, I don’t see any way that it can meet its obligations by the end of September.

Assuming its production falls steadily between now and the end of July to reach its target level, Iraq would still have to reduce output in August and September by more than 1.3 million barrels a day from what it pumped in April — taking production down to a level not seen in six years. That is going to be a very tough sell for the newly installed government in Baghdad.

OPEC and OPEC+ only have more promises from those countries to make deeper cuts. The organizations have no mechanisms to enforce them.

But after the disastrous meetings in March and April, Saudi Arabia looked strong in the run-up to Saturday’s gathering, holding Iraq and Nigeria to account. Maybe those countries will find a way to do what they’ve promised. But even if they don’t, it might not matter so much. Because by demanding extra cuts and getting promises that they will come, the Saudi oil minister has sent a warning to other would-be backsliders: They, too, will be called out if they fall short.

Plus, the oil market could look very different by July. Brent crude is already above $40 a barrel, demand is slowly recovering and supply has been reduced significantly. They may be able to meet their promises simply by maintaining cuts while others slowly increase output.

For now, Saudi Arabia has shown that it can exercise a degree of authority over the other OPEC members and instill some discipline, or promises of it. Even that is a big step toward restoring credibility to OPEC and OPEC+ after a couple of bruising meetings earlier this year.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Julian Lee is an oil strategist for Bloomberg. Previously he worked as a senior analyst at the Centre for Global Energy Studies.

 

[BLA + 1,666]

On 6/7/2020 at 12:17 PM, ceo_energemsier said:

Saudi Arabia Lays Down the Law to the Oil Market

 

 

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Quote

 

 

I respectfully disagree with Bloomberg writer.

The reality is that the current OPEC production cuts were the ONLY true cartel production cuts that were truly put into practice.  Even Saudi Arabia's past production cuts announced were a "Red Herring".  The Saudis never cut below the 10 million bbls/day 2018, 2019 and 2020 up until the Covid19 Demand destruction.  Their proclamations are all talk, but perception turns in to reality which influences traders.

There is a difference between cutting production and cutting exports. When inventories dropped Saudis would make excuses like, "we have to increase production for increased domestic demand for summer A/C  or for a blending plant outage.  Read the ARAMCO certified financial reports. They always maintained 10mm/day  in '18 , '19 , Q1 '20.

 

The ONLY reason the March production cuts worked is the world economy was shut down, massive demand destruction and no storage capacity was available.  

THEY HAD TO CUT .  NO PLACE TO PUT THE OIL.

They can threaten non-complying OPEC members by offering the offenders,  Iraq and Nigeria buyers major discounts.  Bullying, predatory pricing and threats work in the short run.  

Today Saudi Arabia put out a statement they are raising prices for July deliveries close to $6.00 ! ! !  Good luck with that.  Saudis are delusional. They don't control the market any more

 NOBODY CARES ABOUT WHATEVER LAW THEY LAY DOWN. 

No Saudi price increase. Not really true.  They are just cancelling the massive discount they were giving to unload their oil.  What it really amounts to is a 20 cents premium above the contract settlement price.

Just another Red Herring . 

WE WILL HAVE TO WAIT TILL THE CV19 IS OVER AND THE WORLD STORAGE INVENTORY IS DRAWN DOWN TO SEE IF SAUDIS ARE STILL THE SHERIFF IN TOWN AND CAN "LAY DOWN THE LAW"  ?

NOTE : THE 3 BILLION SHARES OF ARAMCO COME OFF LOCK-UP THIS WEEK ON JUNE 11th.  

The quarterly dividend is paid on the 18th.  More important is the 1 share stock dividend for every 10 shares bought if you held on for 6 months.  The date they receive thst share is important.  No distribution date announced yet. 

How will it trade.  Saudi Sovereign Wealth fund has been supporting this "white elephant" from the day it started trading 6 months ago. In the olden days they called that "painting the tape" .  

I think they will continue to  support the price on the 11th.  But at the first sign of weakness after cash and stock dividend is distributed the avg Saudi that was induced to by shares with funds from banks that the Saudi government forced to make loans forced to increase leverage we will see a rush for the exit.

Edited June 13, 2020 by BLA

[BLA + 1,666]

On 6/7/2020 at 2:22 PM, BLA said:

 

 

I respectfully disagree with Bloomberg writer.

The reality is that the current OPEC production cuts were the ONLY true cartel production cuts they truly put into practice.  Even Saudi Arabia's production cuts were a "Red Herring".  The Saudis never cut below the 10 million bbls/day 2018, 2019 and 2020 up until the Covid19 Demand destruction.  Their proclamations are all talk, but perception turns in to reality.

There is a difference between cutting production and cutting exports.  When inventories dropped Saudis would make excuses like, "we have to increase production for increased domestic demand for summer A/C . Or for a blending plant outage.  Read the ARAMCO certified financial reports. They always maintained 10mm/day .

 

The ONLY reason the March production cuts worked is the world economy was shut down, massive demand destruction and no storage capacity was available.  

THEY HAD TO CUT .  NO PLACE TO PUT THE OIL.

They can threaten no complying members offering major discounts to Nigerian and Iraqi clients.  Bullying, predatory pricing and threats work in the short run.  

Today Saudi Arabia put out a statement they are raising prices for July deliveries close to $6.00 ! ! !

Not really true.  They are just cancelling the massive dis out they were giving to unload there oil.  What it really amounts to is a 20 cents premium above the contract settlement price.

Just another Red Herring .

WE WILL HAVE TO WAIT TILL THE CV19 IS OVER AND THE WORLD STORAGE INVENTORY IS DRAWN DOWN TO SEE IF SAUDIS ARE STILL THE SHERIFF IN TOWN AND CAN "LAY DOWN THE LAW"  ?

NOTE : THE 3 BILLION SHARES OF ARAMCO COME OFF LOCK-UP THIS WEEK ON JUNE 11th.  

How will it trade.  Saudi Sovereign Wealth fund has been supporting this "white elephant" from the day it started trading 6 months ago. In the olden days they called that "painting the tape" .  

I think they will continue to  support the price on the 11th.  But at the first sign of weakness the avg Saudi that was induced to by shares with funds from banks that the Saudi government forced to make loans forced to increase leverage we will see a rush for the exit.

Yea, Saudi Arabia is laying down the law.

They announced extension of one month and then No more cuts. The end of voluntary cuts.  Same old song. As soon as they draw down storage inventory time to turn on the production and fill 'em up.

Brent down 3%

Saudi Arabia needs new leadership.  Can't continue to run a country like a family business.

[John Foote + 1,135]

4 hours ago, BLA said:

Saudi Arabia needs new leadership.  Can't continue to run a country like a family business.

Been in a lot of small to medium sized family run businesses. KSA would do brilliantly to run Aramco like the family run businesses I've seen, or even a real publically owned company operating under GAP and ISO. 

[BLA + 1,666]

On 6/8/2020 at 7:40 PM, John Foote said:

Been in a lot of small to medium sized family run businesses. KSA would do brilliantly to run Aramco like the family run businesses I've seen, or even a real publically owned company operating under GAP and ISO. 

I was referring to Running the Kingdom at large. The country, not Aramco.  

Aramco has always been run as a family business.  Even now.  Only 1.5% of equity public.  Like a family business where the kids want nothing to do with running the business.  Just live lavishly off of the riches accumulated.

The Kingdom with Mohammed bin Salman as CEO.  I wouldn't invest IN KSA with him at the wheel. 

Have you seen the MBS business plan.  New City "NEOM" on the Red Sea complete with flying cars.  Every hotel room comes with access to their bomb shelter for protection from hostile neighbors and tickets to Thursday Night Head Lopping" of unfaithful wives .  In the event of a coup your remaining hotel reservations will be refunded. Getting out of the country safely is your problem. 

Funny, they still talk as if the "Vision 2030 is still in the works.  

Edited June 13, 2020 by BLA

[John Foote + 1,135]

7 minutes ago, BLA said:

Foote how is Saudi new Tourism initiative going.  Any insight ?

Depends. If you mean the grand MBS designs, and NEOM, let's just say behind time and over budget.

However there is a small, expanding tourism initiative that is doing relatively well, at least pre-COVID. If anyone has genuine interests I can put you in touch and you can have amazing adventures. The quality of service and facilities, especially outside of the major cities, is erratic. But you will have adventures most can't dream of. You will have a hard time not being invited into people's lives on a level that just rarely happens in the west, but you really need to get off the beaten trail. I highly recommend it, although I don't anticipate anyone taking up my offer. 

As the family business goes, remember the basic bones of Aramco is of an American company, and was that way for decades. Unlike so many places, no nationalization. They bought it "fair and square". And then over time Saudi's became the leadership although expats are still critical. The House of Saud collected the profits, but they did not have a management pressense, that starts relatively recently. They haven't run it like a family business. More like a spoiled 3rd generation trust fund babies on steroids. They don't runs things, but when they intervene, they tend to make it worse.

I am intensely familiar with MBS's plans. Prior to that billion dollar McKinsey sales pitch (they should be ashamed of themselves) a version of it was Vision 2020 for Aramco. Vision 2020 made a certain CEO a minister and a darling of MBS, for a time anyway, His Excellency Khalid Al Falah has fallen out of favor, eventually I suppose he had to deliver a bit. Make no mistake though, the man is very smart. 

A first year business school student in a second rate business college would see MBS's plans as impossible. That said, the basic need for change, reform, both societal and commercial, are correct. I doubt he is the one to deliver. If you are a Newcastle fan (EPL), he might offer relief for time.

[BLA + 1,666]

17 minutes ago, John Foote said:

Depends. If you mean the grand MBS designs, and NEOM, let's just say behind time and over budget.

However there is a small, expanding tourism initiative that is doing relatively well, at least pre-COVID. If anyone has genuine interests I can put you in touch and you can have amazing adventures. The quality of service and facilities, especially outside of the major cities, is erratic. But you will have adventures most can't dream of. You will have a hard time not being invited into people's lives on a level that just rarely happens in the west, but you really need to get off the beaten trail. I highly recommend it, although I don't anticipate anyone taking up my offer. 

As the family business goes, remember the basic bones of Aramco is of an American company, and was that way for decades. Unlike so many places, no nationalization. They bought it "fair and square". And then over time Saudi's became the leadership although expats are still critical. The House of Saud collected the profits, but they did not have a management pressense, that starts relatively recently. They haven't run it like a family business. More like a spoiled 3rd generation trust fund babies on steroids. They don't runs things, but when they intervene, they tend to make it worse.

I am intensely familiar with MBS's plans. Prior to that billion dollar McKinsey sales pitch (they should be ashamed of themselves) a version of it was Vision 2020 for Aramco. Vision 2020 made a certain CEO a minister and a darling of MBS, for a time anyway, His Excellency Khalid Al Falah has fallen out of favor, eventually I suppose he had to deliver a bit. Make no mistake though, the man is very smart. 

A first year business school student in a second rate business college would see MBS's plans as impossible. That said, the basic need for change, reform, both societal and commercial, are correct. I doubt he is the one to deliver. If you are a Newcastle fan (EPL), he might offer relief for time.

John did you read Watkins OP Article just posted.

Not very positive on KSA future.  It is highly critical of MbS.

https://oilprice.com/Energy/Energy-General/Why-Saudi-Arabia-Will-Lose-The-Next-Oil-Price-War.html

I agree with most of it.

I think the U.S. / KSA relationship is not a fractious as the article states. For some reason Trump still defends MbS. As recently as last Friday he gave credit to OPEC and specifically Saudi Arabia for saving the oil industry.  

Looking for some post Trump Presidency real estate development deals with MbS ?

 

Edited June 9, 2020 by BLA

[John Foote + 1,135]

The focus of my advice for Aramco and KSA was improving the internal infrastructure, Saudis do the work.

They are going backwards. The data is theirs, Breaking the culture of patronage is difficult. I fear without catastrophic failure it won't happen. MBS certainly doesn't understand being an absolute ruler doesn't mean the world bends to your will. Even the KSA doesn't.

[John Foote + 1,135]

On 6/8/2020 at 7:42 PM, BLA said:

Looking for some post Trump Presidency real estate development deals with MbS ?

You mean like Kusher getting bailed out by the Qataris?

 

[BLA + 1,666]

13 hours ago, John Foote said:

You mean like Kusher getting bailed out by the Qataris?

 

That was a bailout of Jared's disastrous 666 5th Ave purchase while his father was in prison .

I'm talking about future JV new development deals .

Other topic: why does Trump continue to prop.up that idiot Jared ? 

Edited June 12, 2020 by BLA

[John Foote + 1,135]

On 6/12/2020 at 8:20 AM, BLA said:

I'm talking about future JV new development deals .

There is a phrase you constantly hear in Saudi Arabia, "they are here to suck our blood." There is more than a little truth to that. 

As long as they continue to buy, sellers will line up. Where the friends are when their foreign reserves are depleted, that is the bigger question.

Aramco's record on JVs is abysmal, lots of mega-deals, at least from cash flow/profitability perspective. Aspects of the deals pretty much always meet political needs. And they also use them to lock in customer bases. 

[HSHS 0]

4 hours ago, John Foote said:

There is a phrase you constantly hear in Saudi Arabia, "they are here to suck our blood." There is more than a little truth to that. 

As long as they continue to buy, sellers will line up. Where the friends are when their foreign reserves are depleted, that is the bigger question.

Aramco's record on JVs is abysmal, lots of mega-deals, at least from cash flow/profitability perspective. Aspects of the deals pretty much always meet political needs. And they also use them to lock in customer bases. 

Do you have any doubts that Trump does not control Aramco 100% the last four years in exchange for giving the new young man the title of king?

Do you have any doubts that Trump was not behind the recent oil crisis. Do you think that the young prince will destroy his future and anger Trump? Didn't you know that he had calamities from the story of the Turkish embassy, the brothers of his father and his cousins, who were thrown into prisons, deserted the poor tribes from their homes, killed one of them , and imprisoned many of them to build the new dream city?

Don't you know that all this is covered by Trump and his adviser ( Kushner ) the friend of the young prince,?

 

Are you following the world news from another planet?

All countries of the world know that Trump is running Aramco and that Iran's revenge on Trump and not from Aramco .

anyway they need to search for financial sources to compensate for the catastrophe that Trump brought them to them .

 

Mr. Trump was learning the barber job at the head of the young prince.

 

Aramco is the greatest company , has always supported America, takes money from China and India, and pumps it into American banks.

 

[ceo_energemsier + 1,818]

7 minutes ago, HSHS said:

Do you have any doubts that Trump does not control Aramco 100% the last four years in exchange for giving the new young man the title of king?

Do you have any doubts that Trump was not behind the recent oil crisis. Do you think that the young prince will destroy his future and anger Trump? Didn't you know that he had calamities from the story of the Turkish embassy, the brothers of his father and his cousins, who were thrown into prisons, deserted the poor tribes from their homes, killed one of them , and imprisoned many of them to build the new dream city?

Don't you know that all this is covered by Trump and his adviser ( Kushner ) the friend of the young prince,?

 

Are you following the world news from another planet?

All countries of the world know that Trump is running Aramco and that Iran's revenge on Trump and not from Aramco .

anyway they need to search for financial sources to compensate for the catastrophe that Trump brought them to them .

 

Mr. Trump was learning the barber job at the head of the young prince.

 

Aramco is the greatest company , has always supported America, takes money from China and India, and pumps it into American banks.

 

YAWN!!!!!!!