Is This The End Of The OPEC Deal?



Oil prices crashed into a brick wall on Thursday, dropping more than 1 percent on the news that US stocks jumped and OPEC may be considering a way out of its production cuts.

Reuters reports that some OPEC officials are privately reconsidering the extension of their production cuts beyond June. To date, the prevailing consensus has been that OPEC + would need to keep the cuts in force until the end of this year to rebalance the market.

But the speed of the rebalancing effort has surprised most badysts, and has even surprised OPEC itself. Of course, while the group has kept 1.2 million barrels per day (mb / d) out of the market since the beginning of this year (more or less), the sanctions of the United States have further eliminated the supply off line in Venezuela and Iran. In March, Venezuela's oil production fell by 289,000 bpd, falling to just 732,000 bpd, according to OPEC's secondary sources. He is an amazing figure. The widespread blackout, the economic and political crisis and the harsh sanctions of the United States have crushed Venezuela's oil sector.

Meanwhile, Iran's output has remained a little better, but has still suffered significant declines since last year. The expiration of the exemptions that the EE. UU It awarded eight countries that import Iranian crude expires in a few weeks. From now on, Trump officials appear to be divided over whether or not to take a hard line by letting exemptions expire.

In a sign of how aggressive the Trump government has become, Secretary of State Mike Pompeo is considered to be at the softer end of the spectrum with respect to Iran's policy. Pompeo has a long reputation as a leader in Iran, so the fact that his department is trying to moderate White House politics is revealing. In particular, the Pompeo State Department is concerned about shaking oil markets if the government is too aggressive with Iran, according to Bloomberg. Related: The executive order of Trump is a Gamechanger for the shipment of oil

Meanwhile, OPEC is observing all these events very closely. Saudi Oil Minister Khalid al-Falih has repeatedly suggested in recent months that OPEC + production cuts are likely to be extended. The group seems to want to err on the side of excessive adjustment, especially after last year when OPEC + abandoned production cuts and the oil market collapsed.

On this occasion, OPEC + will have the benefit of being able to react after the president of the United States makes a decision on exemptions from sanctions on Iran. The surprise issuance of exemptions last year is one of the main reasons why prices plummeted in the fourth quarter.

If Reuters takes a hard line and puts more Iranian supplies out of service, and Venezuela continues to see how supply losses increase, OPEC may decide to increase production from current levels, according to Reuters. That report follows the comments of Russian President Vladimir Putin a few days earlier, which seemed to suggest that Russia is wary of keeping supply out of the market. Putin said he does not admit an uncontrolled increase in prices. The Russian energy minister, Alexander Novak, added that there would be no need for an extension of the cuts if the market had reached a balance. Related: Goldman: oil prices will not reach $ 80

Meanwhile, on Wednesday, the EIA also reported another surprise uptick in crude inventories. Taken together: Russia's skepticism, US inventories and now the possibility that OPEC may consider an increase in production, the news gained momentum from the recent rebound in prices. "Now there is a suggestion that OPEC may surprise us and increase production proactively if we get a price increase," Phil Flynn, an badyst at Price Futures Group in Chicago, told Reuters.

Even so, no decisions have been made and nothing is inevitable. In a sign that members of the OPEC + coalition are not all on the same page, the UAE energy minister, Suhail bin Mohammed al-Mazroui, tried to contain the speculation that Russia was losing willingness to cooperate. "Russia will not increase its production unless it is in coordination with the rest of the OPEC and OPEC + countries," Mazroui said. "I believe in the wisdom of Russia, and I think Russia has benefited from this agreement (…) I do not see any reason for Russia not to continue with us."

The higher the oil prices, the more cracks will appear in the cooperation agreement. All that is needed is another interruption of supply in Iran, Venezuela or Libya to end the agreement.

By Nick Cunningham of Oilprice.com

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