The Energy Report 12/5/18
Feeling Left Out
Many OPEC members are feeling left out as the growing bromance between Saudi Arabian Crown Prince Mohamed Bin Salman and Russian President Vladimir Putin are making them feel like the world was a black tuxedo and they are all just a pair of brown shoes. The feeling is that most of the opinions of OPEC members really do not matter and that OPEC production decisions are really being dictated to by Saudi Arabia and Russia and to a lesser extent President Donald Trump.
The hurt feelings and frustrations by some OPEC members are being vented as the cartel faces the most important production decision since the ill-fated production war started in November of 2014. That misstep caused a price crash that bankrupted many shale players and almost bankrupted Saudi Arabia as well. In fact, some might argue that the country hurt the most by the OPEC production war was Venezuelan, as tanking oil revenues made it harder to cover for all the graft and corruption.
Shale oil producers that survived were forced to become more efficient and yet even with major advances are still rooting for OPEC to get its act together. Yet OPEC is changing. We already have Qatar announcing that they will leave the cartel, the first member from the Middle East to do so. This is leading to speculation that another member might take the same path. What that does for the high-end hotel business in Vienna remains to be seen.
What makes it worse for these members, they feel that their fate is really going to be decided by Vladimir Putin. They think Putin is calling the shots because the Crown Prince is under pressure, especially from U.S. Senators, after a classified briefing by the CIA, who say they are certain that the Saudi Crown Prince ordered the murder of the Washington Post columnist Jamal Khashoggi.
Oil also wavered after Saudi Oil minister Khalid al-Falih said “that It’s premature to say what will happen, (AT OPEC) Saudi Arabia is of course an advocate for stable global oil markets. We need to get together and listen to our colleagues and hear about their views on supply and demand and their projections of their own countries’ production.”
Oh sure, now he wants to hear what they say. Like it matters. Of course by suggesting that they might not cut production at all should put the fear into the hearts of the rest of the smitten OPEC producers because a failure to cut will put a big hurt on their economies. So, he will listen, and they still will cut. Of course that puts the final decision in Putin’s hands. Reuter’s reports that Russian sources have indicated Moscow could contribute some 140,000 bpd to a reduction, but Middle East-dominated OPEC insists Russia cut by 250,000-300,000 bpd.
And if you think OPEC is frustrated with Saudi Arabia, most oil traders are frustrated with the American Petroleum Institute that seems to stay out of step with the Energy Information Administration and reports crazy numbers. Last week we saw record petroleum exports and if you look at API numbers this week they must have gone to a halt. The API came out and announced major increases in supply across the board with Crude +5.36 million barrels, Cushing +1.44 million barrels, Gasoline +3.61 million barrels and Distillates +4.32 million barrels. The markets reaction was down but the lack of a major selloff shows the market is skeptical of this data. Normally we would get confirmation with the EIA report but that is delayed until Thursday because of the Day of Mourning for President George Herbert Walker Bush. So even if we think the numbers are way off, we must trade the numbers we have instead of the numbers we are probably going to get on Thursday.
Shifting weather patterns sent natural gas soaring! This is going to be a market that will soar or break hard based on the weather. Buckle up if you are trading natural gas.
The Fox Business Network will have full coverage of the President George H.W. Bush state funeral at the National Cathedral as well as market moves. Stay tuned. Call to get my daily trade levels at 888-264-5665 or email me at firstname.lastname@example.org.
The PRICE Futures Group
Senior Market Analyst & Author of The Energy Report
Contributor to FOX Business Network