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Potential OPEC Cut? It Depends On Non-OPEC Nations Now
Submitted by Matt Smith via OilPrice.com,
Eighty-five years after the birth of French filmmaker Jean-Luc Godard, and the crude complex is acting suitably surreal today. As expected, rhetoric is ratcheting up out of Vienna ahead of tomorrow’s OPEC meeting, with the crude market shaken up like a snowglobe.
Today’s quote of the day is from an unnamed delegate in Vienna, who has summed up the situation pretty much perfectly: ‘In order for there to be a cut in production non-OPEC must participate, Iraq has to participate and the Iran output picture has to be clear’, the delegate said.
Hence the reason why no cut will be forthcoming; Saudi says it is willing to cut production if its cartel cohorts – Iraq, Iran, et al – are willing to do so, as well as key non-OPEC producers such as Russia and Mexico. This is because Saudi knows full well these nations are unwilling to cut production – we have already been told us as much by them.
From one OPEC-focused tidbit to another, and Saudi Arabia has announced its OSP (official selling price) for January, further discounting Arab Light into Asia by $1.40 a barrel (versus the Oman/Dubai average), 10 cents more than December’s discount. It also cut its January Arab Light OSP to the US by $0.30 a barrel, but raised it to Northwest Europe by $0.50.
As our #ClipperData show below, the U.S. has imported just over one million barrels per day from Saudi Arabia this year, of which Arab Light is basically half of that volume. Imports from Saudi are averaging 20% less in 2015 than last year, although Arab Light imports have dropped at a lesser pace. Nonetheless, as US production slows and Saudi OSPs are cut, more oil has found its way to US shores in recent months:
Saudi Arabia crude imports to US (source: ClipperData, Datamyne)
Another interesting OPEC-related tidbit comes in the form of drilling activity. Oil rigs are being idled across Latin American nations such as Columbia and Mexico, where 57% and 42% of rigs have been idled this year, respectively. In Venezuela, however, the rig count is rising, up 19% this year, as the OPEC member tries to slow a decline in production:
In terms of overnight economic data, we have seen the China Caixin services PMI come in well below consensus (53.1), but still showing expansion (at 51.2). For an economy which is shifting away from being driven by industry and exports, and towards being driven by domestic demand, we need to see the service sector picking up the slack as industrial production continues to slow.
The rippling effect of a slowing Chinese economy continues to cripple Brazil, as it is their largest trade partner. Industrial production year-over-year in Brazil has dropped to -11.2% in October, the lowest level since May 2009 (think: belly of the Great Recession).
Brazil industrial production, YoY % (source: investing.com)
From one sign of worry to another, the Eurozone services PMI also came in weaker than expected, as did retail sales (negative for a second consecutive month). Meanwhile, the European Central Bank has pushed the deposit facility rate (aka, bank rates for overnight deposits) further into negative territory to -0.30% in an effort to stoke inflation, while extending quantitative easing for another six months – keeping purchases at 60 billion euros per month through until March 2017.
Mr. Market has responded emphatically to this announcement, and the euro is rallying like an absolute mad thing, in a bad-is-good kind-of-way. Correspondingly, the crude complex is being propelled higher as the US dollar softens; there are plenty more shakes left in the tail for today’s crude price action it would seem.
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Obama will need to order a cut in US crude production.
You didn't drill those wells.
I think oil is bottoming out now. Whatever the fed does
Is Iran even online yet? Iran says they won't cut. They need the money.
really...then why do they keep builting stock across the global month after month?
We lubricated some people.
Prior to drilling them.
Well, well, well.
Wait - bad isn't good anymore? Be still my brain - might fundamentals return to this crazy medicated manipulated algo casino and return to the hodgepodge that actually makes a market with price discovery?
Dare to dream Arnold, dare to dream :)
So where does the Saudi Monarchy fit in a global technocratic empire run by bankers?
Not only have the bankers lowered price, but they have been using Turkey (and probably Israel) and the Rothschild banking family to put low priced gray market oil into the system to suppress prices.
One might think that the Saud would not be too happy with their British and banking overlords.
Do me a favor and hold this live hand grenade while I run far, far away......
"Saudi Arabia crude imports to US"
What's wrong with this phrase?
good is bad, imports are exports, pretty basic stuff
never mind
It means the House of Bush just boot fucked the Made In USA fracking community for the next hundred years.
I notice they always ramp up the price before bad news. Kind of like they get leaks. They just seem to be trying to maintain a price level.
Oil Sands can operate at a 'loss' far longer than most of those unstable regimes.
...and Turkey/ISIS has to participate.
According to this https://www.eia.gov/tools/faqs/faq.cfm?id=727&t=6 the US imports 20% of their oil from the Middle East and Saudi Arabia accounts for some 13%. I'd actually suggest something closer to 17% from Saudi. If anyone remembers the Oil Embargo and a similar incident, Saudi Arabia simply shut off the spigot and all hell broke loose over here. In the aftermath we saw horrific inflation and many domestic businesses go under. It can go down very, very swiftly. And in case you're all cock sure we can do without Saudi Arabia you're in for a rude awakening. Many refineries can't simply refine the "sour" stuff, they have to use some of the "sweet" stuff. Refineries around where I live are modifying as fast as they can, but transporting the domestic sour is very dicey. Make up your mind to enjoy it while we may. PS if you run out and buy a big American gas hog for Christmas you're in for a rude and ill made awakening.