I just saw the last thing I’ve posted here: the piece about Saudi Arabia saying the oil glut is over… last June. If you’re laughing, I admit so am I. However, that’s not an entirely happy laughter because when just a sentence from the Saudis, Russians or anyone for that matter can swing the market, things are not very, well, normal.
Right now we are seeing the same thing: more and more reports coming in from various OPEC sources saying that the production cut will be extended into the second half of the year. As if it wasn’t clear from the beginning: of course shale boomers will start pumping more oil the moment prices start rising. They have no other way. Of course Nigeria, Libya and Iran will pump as much as they can while their exemption lasts. By the way, Nigeria’s Oil Minister the other day said they will be joining the “market rebalancing effort” as soon as they get their production back to pre-NDA levels. Cute.
Meanwhile, Saudi Arabia is giving unprecedented discounts to Asian clients to keep its market share there and is increasingly feeling the strain of prices that are still too low for its. The Wall Street Journal just came out last week with a report citing OPEC sources as saying Saudi Arabia, Kuwait, and Iraq will try to push prices up to $60 a barrel. What this means is that basically nothing has changed for these producers: back in February, other OPEC sources (I can’t get enough of this phrase) told Reuters the Saudis are pushing for $60 a barrel.
While OPEC sources talk to media sharing the hopes and ambitions of some of the world’s top oil producers, here comes the International Energy Agency and pours cold water on everyone, reporting that crude oil stockpiles actually increased over the first quarter, despite the OPEC cut agreement. But don’t worry, the IEA added, they will start declining in the second quarter. I think worry is in order for the bull camp. Just think about it: three months of cutting what for most OPEC members is live tissue from their economic bodies and nothing. No, not nothing but an increase.
In this situation the only thing that’s left that can prop up prices more sustainably is, I regret to say, geopolitics. War. When the U.S. struck Syria prices jumped immediately (and Riyadh was openly happy). Now Trump is threatening to strike North Korea and prices are up again. Riyadh and its friends in the Gulf are bound to be happy again. Syriana anyone?