 |
| Οτωμβρης 2016 Αθήνα |
For OPEC, a Production Cut Aims to Head off Further Price Drops
OPEC members at the International Energy Forum in Algiers agreed in principle to a reduction in oil production, but many facets of the deal remain unresolved. (RYAD KRAMDI/AFP/Getty Images)
Forecast
OPEC's production deal is designed to ensure that crude oil prices do not fall further, not necessarily to push them up significantly.
OPEC members must now try to put aside their differences and hammer out the details of how to implement the deal.
Even if it survives negotiations and is approved, the deal will not have a huge effect on the direction of the oil markets. Oil price recovery will continue, albeit fitfully, and OPEC can do little to accelerate the process.
Analysis
OPEC has finally reached a tentative deal to cut crude oil production, but it does not mean much yet. OPEC members settled on the outline of an agreement Sept. 28 on the sidelines of the International Energy Forum in Algiers. Terms include cutting crude oil production from roughly 33.24 million barrels per day to between 32.5 million and 33 million bpd. The cut is marginal, but if enacted, it would be the first for the group since the height of the global financial crisis in 2008. It would also mark the cartel's first coordinated response since oil prices began tumbling in June 2014 from their peak of more than $110 per barrel, bottoming out just above $25 per barrel in January 2016.
Negotiations over how to enact the production cut lie ahead, leaving a chance that the deal could fall apart between now and the next OPEC summit Nov. 30 in Vienna, where the group hopes to finalize the agreement. For the deal to go through, OPEC members must agree on answers to many of the questions that have scuttled previous coordinated responses. Those include who will shoulder the brunt of the cuts, how to handle rising production from Iran and how to navigate political spats among oil producers. The deal does not necessarily represent a concerted effort by OPEC to push up crude oil prices — the Gulf Cooperation Council (GCC) countries, OPEC's heart, have not fundamentally changed their position to let the markets solve the oversupply problems. Instead, the group is reacting to market conditions that point to even more oil production coming online in a short amount of time despite oil prices' remaining below $50 per barrel. So while OPEC may have finally come to an agreement on policy, that policy might ultimately not even matter.
In the past few months there has been a subtle shift in oil markets that goes beyond prices and production figures — and exports are in the midst of a climb — from both inside and outside OPEC. With its tentative deal, OPEC is trying to cushion the impact on the market of more oil becoming available. The group is concerned that the rise in crude production, which is being driven by both sidelined supplies coming back online and new supplies entering the market, will see prices drop below what many OPEC producers are comfortable with.
OPEC members have agreed on the size of the cut: 200,000 to 700,000 bpd, a relatively modest target in a market that is oversupplied by almost 1 million bpd. What they have not agreed on, however, is who will cut output and by how much, or which countries would be exempt from freezing or cutting production. OPEC is now setting up a committee that will spend the next two months deciding what each member's production cut will be, if any.
Explaining the Shift
Within OPEC, Nigeria, Libya and Iraq are seeing small bumps in production and exports that, if sustained, could add more than 800,000 bpd to the market over just a couple of months — more than the entire cut OPEC is proposing. Those countries will almost certainly be exempt from any production cut, although Iraq may be subject to a freeze.
Of the three, Nigeria may see the most production gain. It reported that production had dropped from an average of 1.8 million bpd in the fourth quarter of 2015 to just 1.27 million in July. The decline stemmed mainly from damage to several export pipelines. Militant attacks on the Forcados pipeline in February, for instance, took about 200,000 bpd offline, and damage to a pipeline from the Qua Iboe fields trimmed another 325,000 bpd of production in May. Both of those pipelines are now expected to come back online in October.
In Libya, the removal of the Ibrahim Jadhran-led Petroleum Facilities Guards from four critical oil export terminals has also removed one of the most significant roadblocks to increasing Libyan oil exports. For the first time since 2014, the Ras Lanuf terminal has sprung back to life. It exported several cargoes in September. In addition, the long-dormant Zueitina terminal is reportedly ready to resume loadings Oct. 3. Already, Libyan oil production has surged. At one point in early August, production was down to roughly 200,000 bpd. Now, it is at approximately 485,000 bpd, according to the chairman of the National Oil Company of Libya. And it is still rising, though it is unlikely to reach the national oil company's goal of 950,000 bpd by the end of the year unless a number of political disputes are resolved. Still more modest production increases are possible.
In Iraq, the deal between Kurdish leaders in Arbil and the government in Baghdad to jointly export 150,000 bpd from Kirkuk has boosted northern Iraq's exports.
Despite the increased production in the three countries, each is subject to vulnerabilities that threaten again to reduce their output before the OPEC production cuts are finalized. Libyan ports are under the control of Gen. Khalifa Hifter, who does not recognize the Libyan government based in Tripoli. For now, he is allowing the Tripoli-based national oil company to export oil. But if it suited his political purposes, Hifter could just as soon turn off the tap.
Militancy in Nigeria continues to threaten the country's oil export infrastructure. In the past week, two attacks on pipelines were reported, and Royal Dutch/Shell was forced to shut down part of the Trans Niger Pipeline in response. Negotiations aimed at reducing militancy are unlikely to succeed, given the wide differences in viewpoints among the Ijaw communities that live in the Niger Delta region, the scene of most of the attacks. But militancy does not necessarily mean significantly lower production. Most militant attacks have either targeted feeder pipelines or have caused minor damage that has been quickly repaired. Of the two major incidents there, the Qua Iboe pipeline damage stemmed from an accident, not an attack. The outlier in the militant campaign was the damage to the Forcados pipeline — a sophisticated underwater attack that required imported equipment to repair, leading to the lengthy outage. Even if minor attacks continue, Nigeria could still see a sustained rebound.
Beyond OPEC, production from the massive Kashagan field in Kazakhstan will finally start coming online in October. Meanwhile, U.S. oil production is showing signs of life. From June 2015 to July 2016, production had fallen from around 9.6 million bpd to around 8.45 million bpd as low oil prices took their toll in two of the most productive shale oil basins, the Eagle Ford and Bakken. Since then, production has stabilized. Future estimates show a possible slow rise in U.S. production. In the Permian Basin, for example, production remains strong, and oil prices hovering around $50 a barrel will suffice to continue increasing production there. Goldman Sachs' forecast for U.S. production, perhaps the most aggressive of the industry analysts, predicts that it will rise by 600,000 to 700,000 bpd by the end of 2017.
Of course, how much U.S. production rises depends on prices. A significant cut in output by OPEC that sends prices above $60 a barrel, for instance, would accelerate the pace of U.S. production recovery, ultimately a self-defeating move for the cartel. The balancing act it must negotiate to prevent that explains the modest nature of OPEC's tentative production cut target: It is trying to make sure that the additional production coming online does not weigh down the market while not sending prices high enough to stimulate shale production. But its deal could just as easily not come to pass. Should the supply situations in Libya and Nigeria deteriorate, for example, the cuts could be abandoned entirely, because there may not be enough motivation to move beyond the group's political disputes.
Saudi Arabia and OPEC Cope With Reality
A cut in OPEC oil production does not necessarily equate to a cut in exports by the group as a whole. Individual members, such as Saudi Arabia, which increases oil production most summers to meet greater demand for electricity generation, could account for large portions of the cut. For example, between February and June 2016, Saudi Arabia's direct use of crude oil increased from 300,000 bpd to 700,000 bpd. With winter coming and electricity demand dropping, Saudi Arabia now has four options:
Maintain production levels and export the oil that it will no longer use for power generation. This could add as much as 400,000 to 500,000 bpd of exports.
Maintain production, send excess production into storage and maintain export levels.
Cut production and maintain export levels.
Cut production and exports by sending some level of excess production into storage (or not draw from it).
Given the small amount of the cuts, it is most likely that Saudi Arabia is deciding to explore the option of cutting production but maintaining current export levels. Saudi Arabia's exports have remained relatively constant at 7 million to 7.5 million bpd since the beginning of 2015. For Saudi Arabia, and the rest of OPEC, the production trim represents not so much a change in strategy but rather an adjustment of its existing strategy to fit current market dynamics. Prior to the deal's finalization, however, Saudi Arabia is likely to maintain high levels of production and send excess production to storage as it shoots for a higher starting point for any potential cut. Even if the OPEC deal falls apart, Saudi Arabia will likely follow its path from last winter and constrain its export growth while dropping production unilaterally.
The OPEC deal faces a number of potential pitfalls. While, for example, Saudi Arabia's energy minister has said Iran should be able to produce at "maximum levels that make sense," Riyadh and Tehran still do not agree on what those levels should be. Domestic political pressure will prevent Tehran from agreeing to restrict its output, even though, at around 3.6 million bpd, its production is reaching its technical limits. If Iran agreed to a freeze at its current production level, President Hassan Rouhani, who is running for re-election in 2017, would come under strong criticism from Iran's more nationalistic conservatives, who would liken it to self-sanctioning Iranian oil exports.
Enforcement and measurement of any deal OPEC reaches is another key concern. Notoriously, when export quotas applied to individual OPEC members, countries routinely exceeded their limits. That system was replaced in December 2011 by a group-wide quota system, which was then abandoned four years later. Currently, the group cannot even agree on what data to use to establish the oil production ceiling. Less than 24 hours after the agreement was reached in Algeria, Iraqi Oil Minister Jabar al-Luaibi complained that the secondary sources of information that were being used to calculate the 33.24 million bpd starting output figure and the target figures underestimated Iraq's actual production level (which would mean that if Iraq were to freeze or cut, it would be based on an inaccurate starting level). The disparity between secondary sources and self-reported data is significant. Collectively, the group reported that it produced 34.3 million bpd in August (using July numbers for Algeria, and other statements for Gabon and Libya), while secondary sources calculate a figure of 33.24 million. The biggest gaps were for Iraq (an additional 285,000 bpd), Kuwait (200,000 bpd), the United Arab Emirates (200,000 bpd) and Venezuela (225,000 bpd).
OPEC's major producers may have made a deal for now, but the deal is likely to have a marginal impact at best. Prices may rise slightly for a short period, but U.S. shale producers can ultimately undo any substantial rise in prices. For OPEC, this deal is much more about minimizing the pain that its members feel as the oil market slowly recovers. They recognize that they cannot speed up the recovery, nor can they substantially alter the market's overall direction, but they can help make sure prices do not fall in the short term. The expected addition of oil from Libya, Nigeria, Iraq and Kazakhstan, coupled with more optimistic future expectations from U.S. production and the prospect that Saudi Arabia and other GCC countries could export the oil that they had been burning for power in the summer, could certainly send prices down substantially in a short period, a development OPEC wants to avoid. With the agreement, OPEC is also hoping to show that while it is down, it is still a force that can affect the market.
No matter the outcome of the OPEC negotiations, it has become quite clear that the cartel's actions now are confined to managing the downside of the market — just as the group sprung into action when prices were around $25 a barrel last January, only to stop acting when prices recovered to $45 two months later. OPEC cannot effectively manage the upside, and Saudi Arabia, the GCC and its other major producers know that.
https://www.stratfor.com/analysis/
www.fotavgeia.blogspot.com
Δεν υπάρχουν σχόλια:
Δημοσίευση σχολίου