Bob D + 562 RD December 3, 2019 What will OPEC do?? Here is JPM's take! Middle East Oil - OPEC+ preview Saudi to drive formalization of deeper cuts to 1.5mb/d and extension to December with improved compliance from Iraq By Christyan F MalekAC, Matthew Lofting, CFA, Ellis F Skinner, Jocelyn A Dsouza, CFA OPEC unlikely to ‘kick the can’ at Dec 5th meeting; Base case = Formalization of deeper cuts at 1.5mb/d (currently 1.2mb/d vs Oct’18). On Monday we held a conference call with Jaafar Altaie, Managing Director and Founder of Manaar Energy to discuss the outlook for OPEC(+) ahead of the meetings on the 5/6th of December. Our key takeaway is that Manaar expect OPEC to agree to a formalisation of deeper cuts at 1.5mb/d, led and reinforced by Saudi's new oil minister who is likely to agree to formalise the Kingdom’s production quota at 10.0mb/d (vs the current quota of 10.3mb/d). Manaar also expect the Kingdom’s oil minister to leverage his strong political standing to drive increased compliance from other OEPC+ members, particularly Iraq, Nigeria and Russia (c150kb/d, 200kb/d and 60kb/d over their OPEC+ limits respectively as shown in Figure 1). Above this level, Manaar explained that additional cuts would be difficult to achieve unless other OPEC members reduced production (as opposed to formalising over-compliance). Key takeaways: Saudi’s oil minister to push for deepened cuts to Dec’20; signs of a softening approach to Iran. As we highlighted in our Global Oil & Gas CEO conference review note (here), Saudi’s fiscal ‘comfort level’ for near-term Brent prices is around $60-70/bbl, as the Kingdom accelerates economic growth in the absence of significant FDI and increasing government debt. Although Saudi is likely to push to extend an updated deal through to December 2020, Manaar see an agreement until June as more likely, in line with when US sanctions on Iran are due for review. Contrary to consensus, Manaar expect Saudi’s Oil minister to take a more conciliatory approach to Iran, with the Kingdom likely to allow a gradual return of Iranian volumes should sanctions ease, offsetting natural declines in Angola/Venezuela. Shale growth increasingly factored into OPEC discussions – no more ‘free passes’. Main concern now ensuring compliance of constituent members. Manaar pointed to a changing attitude towards US shale, with the group now incorporating the potential for renewed growth into discussions around whether to cut production. Instead, Manaar expect the main focus of the OPEC meeting to be improving compliance among constituent members. Iraq: Ongoing protests to drive up to 400kb/d reduction in 2020. Although Iraq is currently under-complying with the existing OPEC agreement by c150kb/d (October’19 production 4.68mb/d vs agreed ceiling 4.53mb/d), Manaar believe that ongoing protests could cause reduced production by up to 400kb/d (vs an estimated current impact of c150kb/d), which equates to the aggregate crude production directly controlled by the government (the majority of fields are instead operated through technical services contracts as opposed to direct ownership). 1 Quote Share this post Link to post Share on other sites
Martin + 31 December 3, 2019 I cannot see Russia going along with any reductions. The OPEC cut might indeed be to offset an anticipated increase in Russian output? *shrugs* Who can say? 1 Quote Share this post Link to post Share on other sites
Gary LeBlanc + 50 GL December 3, 2019 Don't expect Russia to partake in any cuts since inclimate weather prevents that from happening. They have been overproducing anyway. Not much but not adhering to its quota. At 12.9 mbd US can rework DUCs in a matter of weeks and take the market share that KSA is willing to cut lose. Notice the IPO is coming out before and not after the OPEC meeting. KSA can't come out and say they are willing to cut production and as a result, more than likely, revenues will adversely affected and then go public the next day. Financial disaster. 2 Quote Share this post Link to post Share on other sites