Crude prices are plunging early in Asian trading with Brent down 12% following a delay to the much-hoped-for OPEC+ meeting (due tomorrow, Monday, but now pushed off until Thursday).
As Ransquawk details, an OPEC+ call that was scheduled for Monday has been delayed until Thursday, amid an intensifying dispute between Russia and Saudi Arabia over who is to blame for falling crude prices. Participants are to discuss the demand hit to crude from COVID-19. Analysts do not seem to be convinced that the group will make sufficient progress; the Saudis and Russia have called for other global producers – namely US, Canada and Mexico – to share the burden of cuts, while Norway has also said it would consider cutting production in any coordinated global effort.
LEVEL OF CUTS: Ahead of the now notorious March OPEC meeting, there was a recommendation to cut an additional 1.5mln BPD from April 2020 through the end of 2020, with a review in June. The deal was conditional on support from OPEC+, and OPEC said any deal could only be applied on a pro-rata basis, and proposed core members cut by 1mln BPD, and non-OPEC by 500k. Ahead of Thursday's meeting, a figure of 10mln BPD cut to output has been floated (around 10% of global supply), although following a call with Saudi Arabia, US President Trump last week indicated that it could be as much as 15mln BPD. A source has suggested that the 10mln should be slashed from current levels of output. Either way, Goldman Sachs thinks that the demand hit might actually be more like 26mln BPD, and a cut of 10mln BPD may prove to be insufficient.
TEXAS: The Trump administration has previously signalled it would not impose mandatory curbs on companies' production, given the antitrust legislation, although Stratfor's analysts note that Texas, where field production was running at a pace of 5.37mln BPD at the end of 2019, does have the legal framework to be able do so at a state level. One of the three Texas Railroad Commission members, Ryan Sitton, has indicated a willingness to agree production cuts to support oil prices and prevent producers in the state going bust. Texas regulators are to meet on 14th April to discuss production curbs in the state, and may vote on any resolution a week later, Reuters reported. Sitton, however, is a lame duck on the Commission, having lost in the March primary to a challenger, and his term concludes in December; the state's two other regulators, Wayne Christian and Christi Craddick, have not publicly endorsed cuts. Meanwhile, US President Trump on the weekend said he was considering slapping tariffs on oil imports, or even take other such measures, in order to protect the US energy sector from falling oil prices; Canada is reportedly also mulling such steps. This follows calls by leading lawmakers in recent weeks for such action. For reference, the US imports of petroleum were around 9.1mln BPD in 2019, of which Saudi and Russian imports were just over 500k each.
WHAT TO WATCH: Talk of further production cuts was supportive for crude prices last week, and were participants not able to strike a deal, oil could again find itself under pressure. In terms the signposts to watch, Stratfor suggests monitoring Saudi willingness to go back to letting Russia cut a much smaller amount, or an openness to a Texas-only US commitment. "In any case, a deal keeping Brent above USD 30/bbl does not seem the most likely outcome," it said. Additionally, others have noted that Saudi Arabia delayed publishing its official selling prices for May until 10th April (a day after the call), an unprecedented measure to allow stakeholders more time to reach a deal ahead of Thursday's call, a source said; the data was due to be published on Sunday, and it will this week be useful in corroborating how the meeting really went.
"The sense of urgency is building," said Jason Bordoff, a former Obama administration energy adviser and the founding director of Columbia University's Center on Global Energy Policy.
"Nobody wants to be seen to blink first in this game of oil-price-war chicken...but I don't think anyone -- including the Saudis and the Russians -- is happy with how the oil market looks right now."
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Interestingly, the collapse in crude did not do anything to stall the equity algos which purportedly saw hope in some slowing accelerations in body counts and decided it was time to buy the dip...
Shawn Reynolds, portfolio manager for investment firm VanEck's natural-resources equity strategies, said he isn't ready to boost his holdings of energy assets. He has slashed his investments in the sector to the smallest allocation he has ever had.
"Just to stop the carnage, you want to see some rationality brought back to the market," he said.
"Everybody is just getting killed."
Mr. Reynolds said he wants to see clarity on the pandemic and more details on supply curbs before he even considers increasing it again.