The Downside Risk Of Tomorrow’s OPEC+ Meeting

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– After more than 2 years of coordinated production cuts, OPEC+ has reached the point when it no longer must increase production targets and needs to rethink the future of the 23-member oil group.

– Most analysts expect no or just very moderate changes to the OPEC+ September 2022 production guidance – with June figures already reaching a hefty 320% compliance rate, incremental supply remains the main challenge for members.

– The worsening demand outlook will play a part in OPEC+ decision making as the group wants to keep oil prices high enough to generate bumper profits without stymieing adequate supply to the market.

With Russia facing a series of sanctions from 2023 onwards and thus susceptible to production drops, Saudi Arabia is seeking to keep OPEC+ as the oil market’s coordination force, preferring to avoid sudden market shocks as Riyadh has finally grown to enjoy a protracted windfall period.

Market Movers

Saudi Aramco (TADAWUL:2222) has reportedly bought US lubricants producer Valvoline (NYSE:VVV) as it seeks to expand its foothold in the downstream business, for a reported sum of $2.65 billion.

– The world’s largest EV battery maker, the Chinese CATL (SHE:300750) has seen its vice chairman Huang Shilin resign this week, with founder and chairman Zeng Yuqun taking over the concurrent role of general manager, sending the stock up 5% on Monday alone.

– One of the largest wind turbine producers globally, Siemens Gamesa (BME:SGRE) is considering cutting some 10% of its current workforce or 2,500 jobs, on the back of yet another 2022 guidance decrease.

Tuesday, August 02, 2022

One oil major after another is announcing phenomenal quarterly and revved-up share buyback programs, with the likes of BP, Marathon, and Devon Energy joining the list this week. Meanwhile, Brent prices have been bogged down at around the $100 per barrel mark so far this week. Should tomorrow’s OPEC+ meeting devolve into another campaign of smoke and mirrors, the structural weakness in demand coming from weak global manufacturing data and Europe’s ongoing struggle to contain Russia’s energy blackmail might reappear again, pushing oil further down into double-digit territory.

Taxing of US Crude Imports Raises Questions. President Biden’s $433 billion tax and climate bill, potentially seeing a Senate vote this week already, aims to slap a 16.4 cents-per-barrel tax on imported crude and products, raising fears that this would inadvertently boost inflation as USGC refiners rely on heavy crudes from Latin America and elsewhere.

US Targets Iranian Oil Trade Again. The US Treasury and State Department imposed sanctions on a further six companies, based in Hong Kong, Singapore, and the UAE, for allegedly facilitating trade in Iranian oil and petrochemical products, the third round of blacklisting in the last two months.

OPEC Woos Russia to Stay in Oil Group. Haitham al-Ghais, OPEC’s new secretary general, stated Russia’s participation in OPEC+ is vital for the success of the agreement, adding that the group does not control oil prices but finetunes the market in terms of supply and demand.

Nord Stream Blame Game Never Stops. With markets still having no idea where the ominous Nord Stream 1 turbines are, Russia has said that there is little it can do to revamp pumping along the pipeline as it continues to supply only 20% of nameplate capacity with only one turbine working.

Iran Signals Readiness for New Round of Talks. With the European Union still proposing new initiatives to breach the gap between the US and Iran, with Brussels submitting a new draft text on the JCPOA revival, Tehran said it is ready to set new talks provided they lead to a “sensible and stable” deal .

Australia Wants to Keep Its Gas at Home. Australia is considering curbing exports of its LNG after a national watchdog that more natural gas is needed to satisfy the needs of its east coast amidst declining onshore production, with some restrictions likely even looking into 2023.

Luxembourg Moves to Freeze Ecuador Assets. Banks in Luxembourg were ordered to freeze assets held by Ecuador after the Latin American failed to honor a $391 million payment towards Anglo-French oil firm Perenco, a result of its unexpected ending of a production-sharing agreement.

ADNOC Finds Offshore Gas. UAE national oil firm ADNOC, along with block operator ENI (NYSE:E) and PTTEP, discovered a second gas play in Offshore Block 2, adding 1-1.5 TCf to a shallower target appraised earlier this year, all this only three years after the acreage was awarded in Abu Dhabi’s first-ever block bid round.

Nigeria’s Main Export Grade Halted Amidst Leaks. The Shell (LON:SHEL)-operated Forcados terminal has been out of operation since July 17 after a leak was found from a subsea hose, with August cargoes already deferred into September as the 200,000 b/d stream remains marred by force majeure events.

US Diesel Becomes Hedge Funds’ New Favorite. According to CFTC figures, hedge funds and other money managers purchased the equivalent of 9 million barrels in US diesel futures in the week to July 26, a sign that slow stock builds of middle distillate spell trouble for diesel prices ahead.

Copper In Jitters After Giant Chilean Sinkhole. Chilean authorities started an official investigation into a giant sinkhole at the Alcaparrosa mine operated by Lundin Mining (TSE:LUN)82 feet in diameter, potentially spelling trouble for copper production in Chile’s northern regions, home to almost 30% of global copper production.

China Pioneers Offshore Shale Oil Drilling. With China’s upstream segment focusing on shale plays, state-controlled oil firm CNOOC (HKG:0883) successfully tested production at the Weiye-1 well, the country’s first-ever offshore shale oil well.

Texas Struggles With Unbearable Heat. The Electric Reliability Council of Texas (ERCOT) issued a warning that power use in the Lone Star State will break records this week again, with peak demand expected to come on Wednesday at 80,076 MW (the previous all-time high was reached two weeks ago , at 78,828 MW).

By Tom Kool for Oilprice.com

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