The Energy Report 04/29/19

What Did OPEC Know?

What did OPEC know and when did they know it? Did OPEC get a call from the President of the United States? It doesn’t matter because when President Trump talks, oil traders listen. Ok maybe they did not listen in the past, but after the President engineered a massive oil price crash last year they now must. The real question is whether OPEC will listen.

Oil prices that were overdue for a correction got hit hard after President Donald Trump made a comment to reporters where he said that “The gasoline prices are coming down,” Trump said. “I called up OPEC and said you’ve gotta bring ’em down.” The only problem was that no one in OPEC seems to remember the call.

Later the President tweeted that he “Spoke to Saudi Arabia and others about increasing oil flow. All are in agreement. The California tax on gasoline is causing big problems on pricing for that state. Speak to your Governor about reducing. Economic numbers, 3.2% GDP for what is often worst quarter, looking good!”

He is right, the economy is looking great and that bodes well for oil demand and he is right that high taxes in part are the reason for high California gas prices. There are other reasons. Hit the link for my Fox Business Network opinion piece.

Yet, while the President may shake up traders with a well-placed tweet, the oil fundamentals may make the impact of the oil tweet less impactful. In the past when the President tweeted about oil, OPEC and its oil cutting coconspirator Russia dutifully raised output. They won’t do it again. Already they are saying in comments that before they raise output, they want to see a shortage of oil, increased demand or signs that Iranian barrels are coming off. I don’t think the phantom OPEC phone call, or a tweet is going to change that. You also have the fact that the waivers to buyers of Iranian oil are set to end May 5th. OPEC can’t trust that the President won’t grant new waivers at the last minute. In fact, there were some unconfirmed rumor reports that the President was going to do exactly that. Probably not true, but who knows?

We do know that the oil patch is still in cut back mode based upon Friday’s Baker Hughes rig count. The overall count fell by -21 to 991 last week, the lowest for more than a year. Rigs drilling for oil fell -20 to 805, the lowest for more than a year. The number of active oil rigs has fallen by -83 (-9%) since peaking in the middle of November, according to Reuters.. The reality is that many shale fields are still bleeding cash. That’s why Big Oil needs to step in. But that may not be easy.

Bloomberg News reports that “Anadarko Petroleum Corp. is “preparing to endorse” Occidental Petroleum Corp.’s $38 billion takeover offer, the Financial Times reported, a move that threatens to scupper a previously agreed deal with Chevron Corp. Anadarko’s board of directors determined that the cash and stock offer from Occidental is superior to Chevron’s, according to the FT report, which cited people it didn’t identify. Chevron’s offer was valued at $33 billion when the agreement was announced April 12. Reuters reported earlier Anadarko would pursue talks with Occidental, citing sources familiar with the matter who it didn’t identify.

The move unofficially opens a bidding war for Anadarko in what would be the largest deal in the oil and gas sector in at least four years. Should Anadarko’s board decide Occidental’s bid may be the better of the two, Chevron has four days to come back with a counter offer, according to Morgan Stanley. If Chevron ups its price, Occidental then has three days to respond with a new proposal. Anadarko and Occidental could not be reached for comment outside normal business hours. Chevron referred questions to Anadarko. Anadarko is one of the largest independent U.S. oil producers and has been the subject of merger speculation for some time. While its operations span three continents, the real prize for Chevron or Occidental.”

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Phil Flynn

The PRICE Futures Group

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network

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