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By Julian Lee, Bloomberg sure 03/02/2019
NEW YORK (Bloomberg Opinion) – If timing is paramount, why does OPEC seem to continue to be wrong? The reductions in the group's oil production in 2019 began in earnest in January and will worsen, just as US sanctions against Venezuela begin to hurt.
The problem for producers and their allies in the wider OPEC + group is that they do not exercise as much control over the market as some people accuse it of. And that makes it almost impossible for the timing of their actions. Unexpected external factors seem to continue to manifest themselves and, at least recently, many of them seem to come from Uncle Sam.
The increase and then the fall in oil prices in the second half of last year are an example.
In June, President Donald Trump had tweeted that he had asked King Salman of Saudi Arabia to boost the country's production to fight "turmoil and dysfunction". [sic] in Iran and Venezuela, "said the king, but prices continued to rise, partly because of Trump's admission to zero Iranian oil exports when sanctions came into effect in early November.
Saudi production levels – which are virtually stalled at least a month in advance, once customers have ordered the quantity they want to buy – hit a record 11.07 million bpd to coincide with the beginning of sanctions imposed by Iran. Imagine their surprise when Secretary of State Michael Pompeo announced that the US had granted sanctions exemptions to eight of Iran's major customers, allowing them to continue buying more than one million barrels per year. day of crude and condensate.
But that's not the only thing that has rocked the market sentiment from the fear of scarcity to the fear of overabundance. The change in valuation of US production over the summer has been much less reported. A report at the end of October, which fueled the November forecast of the Energy Information Administration, showed that production had increased by 670,000 b / d between June and August. Prior to these reports, the situation was very different: the data indicated a slowdown in growth over the summer.
This may not seem huge, but it was enough to add more than 45 million pounds of unexpected supply during the five months to November. This represents more than a year of production from the smallest member of OPEC, Equatorial Guinea.
Add this volume to historical balances and production is increasing in Saudi Arabia, Russia and the United Arab Emirates, and it is not surprising that the market started to appear saturated in November.
Move on to December, when OPEC and its friends – after strong pressure from Russia – decided to cut production by 1.2 MMbopd in early January, with a starting point that was, for the most part, country, their October level.
No sooner had they begun to apply these cuts than Trump had imposed sanctions on Venezuela's crude exports and the Latin American country's purchase of the diluent it needed to mix with its oil. heavy. Last year, the United States was the only supplier of heavy naphtha that worked best. If President Nicolas Maduro can not find a replacement elsewhere – and he will not find it easily – the impact on the country's output will be rapid.
Even if he finds willing suppliers, they will be far more distant than the US Gulf Coast. Since his country stores little diluent, a shortage is almost inevitable. Do not be surprised if Venezuela's production drops by 500,000 billion barrels a year over the next two months under the current government. And if this government is replaced, do not expect such a quick recovery.
And when this recovery happens, do not be surprised if this stems from OPEC's decision to increase production. If the moment comes again, we can expect another year of ups and downs for the price of oil.
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