Oil Shorts On Notice After Russia, Saudis Agree To “Cooperate Closely” To Keep Energy Market Stable


With the price of Brent unrefined trading in a narrow – and low – variety because the covid crisis, now that we live in a work from house world where demand for gasoline, oil and energy is far less than before March …

… OPEC nations have been harming considerably, since as the following summary chart from the EIA reveals, Brent in the low $40 s is well below the fiscal breakeven costs for many member of the oil-producing cartel (with the exception of Russian, Qatar and Mexico).

Which is why we have actually been shocked at how patiently the world’s biggest oil exporters have handled themselves considering that the pandemic breakout, even as their net capital position has been slowly draining pipes month after month.

That may will china, nevertheless, with the two largest OPEC producers – Russia and Saudi Arabia – revealing on Saturday they are “ all set to cooperate closely to keep the global energy market steady”, the Kremlin stated in an emailed declaration after President Vladimir Putin and Saudi Arabia’s de facto leader, Crown Prince Mohammed Bin Salman, held their second phone call this week.

According to Bloomberg, the 2 leaders spoke “thoroughly” about the OPEC+ cooperation “continuing an Oct. 13 conversation throughout which they evaluated efforts to balance supply and need in the oil market and enhance the global economy.”

The calls came prior to a little group of the world’s main oil exporters are arranged to evaluate compliance with production cuts on Oct. 19, and ahead of the next OPEC+ top on Nov. 30- Dec. 1, when the cartel is anticipated the reassess, and likely scrap its previous strategy of increasing output by 2mmb/d beginning in January as part of a strategy to taper cuts begun in May, due to the ongoing need damage from the second wave of covid cases in the US …

… and Europe …

For now the status quo is set to stay: earlier this week, Russian Energy Minister Alexander Novak and his equivalent from the United Arab Emirates, Suhail Al Mazrouei, said that the group plans to proceed with the supply increase as scheduled. We expect this will not only alter but likely reverse to even more collaborated production cuts in the coming weeks. That’s due to the fact that OPEC’s joint technical committee on Friday alerted that under a negative situation global oil stockpiles might increase by an average 200,000 barrels a day next year. The circumstance, which is not the base case for the group, might emerge if Libya handles to restore supply and the pandemic hits demand harder than anticipated, according to a file seen by Bloomberg.

And while the market balance continue to be a fairly strong headwind to OPEC’s efforts to press the rate of oil greater as an outcome of pent up supply and shrinking demand, one short-term alternative OPEC needs to boost the rate of oil is to require a speculative squeeze: as shown in the chart below, net Brent and WTI specifications are at the lowest level since WTI briefly went negative on April 20, and more than 50% below the recent highs struck in early 2018.

Of course, a more feasible alternative to pump prices is to have several OPEC exporters merely stop producing as a result of their economic implosion: something we have actually already seen in Venezuela, and which will infect other oil-producing nations if oil is not able to raise from its present fiscally-unsustainable levels.

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