Oil Markets Could Face A Catastrophic Scenario This Week

This week, a possible catastrophe scenario could emerge in the oil markets, based not only on OPEC + export strategies but also due to the growing internal turmoil in Libya, Iraq and Ecuador. Another possible political and economic upheaval is also being created in other producers, while the US shale is still showing no signs of a significant increase in production in the coming months. World oil markets have long believed that OPEC has enough surplus capacity to stabilize markets, with Saudi Arabia and the United Arab Emirates simply needing to open their taps. However, there is no real evidence to suggest that OPEC has increased its production capacity in the short term. A research note by Commonwealth Bank commodity analyst Tobin Gorey has already noted that the two OPEC leaders are generating capacity in the short term. At the same time, UAE Energy Minister Suhail Al Mazrouei put even more pressure on oil prices as he said the UAE was producing almost maximum capacity based on its quota of 3.168 million barrels per day (bpd) under the agreement with OPEC and allies. of. This comment could still indicate that there is excess capacity in Abu Dhabi, but the remarks came after French President Emmanuel Macron told US President Biden during the G7 summit that not only the UAE is producing at full capacity, but also that Saudi Arabia has only another 150,000 bpd of excess capacity available. Macron said UAE President Mohammed bin Zayed (MBZ) told him that the UAE was at peak capacity, while claiming that Saudi Arabia could increase production by another 150,000 bpd. Macron also claimed that Saudi Arabia would not have a huge additional capacity in the next six months. However, official figures for both OPEC producers contradict this narrative. Saudi Arabia produces 10.5 million bpd, with an official capacity of between 12-12.5 million bpd. The UAE produces about 3 million bpd, claiming to have a capacity of 3.4 million bpd. The two countries’ back-up production is still officially around 3.9 million bpd together. Most analysts, however, have been questioning this for years. Examining OPEC + ‘s production targets, the group has not been producing at agreed levels for months. At the forthcoming Middle East and North Africa-Europe Energy Dialogue in Jordan, Al Mazrouei of the United Arab Emirates said that OPEC + was running 2.6 million barrels a day from its production target. This means a possible shortage in the market, which could increase even more if the internal turmoil causes a further reduction in production. For July-August, OPEC + agreed to increase production by another 648,000 bpd, which would mean that the overall reduction in production during the COVID-19 pandemic of 5.8 million bpd has been restored. Whether OPEC + will be able to reach this level in the coming weeks remains very uncertain. Pressure will mount in the coming days as Al Mazrouei’s statements seem to disprove allegations of a lack of surplus capacity, but as always “where there is smoke, there is fire”. A possible lack of overcapacity or no availability at all, coupled with an expected NOC force in Libya in the Gulf of Sirte and a halt to Ecuadorian oil production (520,000 bpd) in the coming days due to anti-government protests, is likely to lead to oil price. There is still some optimism in the markets for a real supply-demand contraction, as high levels of inflation and a possible global economic slowdown could lead to lower demand. So far, however, optimism has not materialized, and demand continues to rise, even as petrol and diesel prices break historical lows. The opening up of the Chinese economy, global gas shortages and higher temperatures in the coming weeks, combined with normal demand-driven demand in the US and EU, are likely to push oil prices higher. OPEC’s future is at stake if surplus capacity is really depleted. For years, analysts (including myself) have been warning of a lack of upstream investment worldwide. This has already led to lower production capacity of independent oil companies, like most ILOs, and for national oil companies, the situation seems to be similar. Although Saudi Aramco, ADNOC, and a few others have maintained their upstream (and downstream) investments over the past decade (even during COVID), other major OPEC producers have seen declining investment budgets or even full-scale crises. Most OPEC producers could still increase their total production, but only for a limited time. Where most of the surplus capacity is based on short-term, partly to avoid long-term stockpile destruction, the current oil crisis is a much more protracted long-term issue. Western sanctions on Russia, combined with existing sanctions on Venezuela and Iran, will hurt markets for years to come. There is no quick fix to the current crisis in the oil market, and even lifting sanctions on Venezuela or Iran will not lead to significant increases in volume. At the same time, increased Western political intervention in the already troubled market will also hit volumes. The growing call in the US, UK and EU for an unexpected tax on oil and gas companies will not only limit further upstream investment but will also lead to higher pump prices. Consumers are not going to feel positive about prices and can expect steadily rising energy bills in the coming months. No OPEC statement in the next two days will be able to allay market concerns. The future of OPEC depends entirely on its ability to stabilize markets. There are currently no cartel options available. Without new oil production hitting the markets any time soon, OPEC leaders MBZ and successor to the throne Mohammed bin Salman must try to maintain the illusion of surplus capacity. If it is revealed that the surplus capacity is below 1.5-2 million bpd, the future of both OPEC and the oil markets will be bleak. By Cyril Widdershoven for Oilprice.com More top readings from Oilprice.com:

title: “Oil Markets Could Face A Catastrophic Scenario This Week " ShowToc: true date: “2022-11-19” author: “Justin Reckart”

This week, a possible catastrophe scenario could emerge in the oil markets, based not only on OPEC + export strategies but also due to the growing internal turmoil in Libya, Iraq and Ecuador. Another possible political and economic upheaval is also being created in other producers, while the US shale is still showing no signs of a significant increase in production in the coming months. World oil markets have long believed that OPEC has enough surplus capacity to stabilize markets, with Saudi Arabia and the United Arab Emirates simply needing to open their taps. However, there is no real evidence to suggest that OPEC has increased its production capacity in the short term. A research note by Commonwealth Bank commodity analyst Tobin Gorey has already noted that the two OPEC leaders are generating capacity in the short term. At the same time, UAE Energy Minister Suhail Al Mazrouei put even more pressure on oil prices as he said the UAE was producing almost maximum capacity based on its quota of 3.168 million barrels per day (bpd) under the agreement with OPEC and allies. of. This comment could still indicate that there is excess capacity in Abu Dhabi, but the remarks came after French President Emmanuel Macron told US President Biden during the G7 summit that not only the UAE is producing at full capacity, but also that Saudi Arabia has only another 150,000 bpd of excess capacity available. The story goes on Macron said UAE President Mohammed bin Zayed (MBZ) told him that the UAE was at peak capacity, while claiming that Saudi Arabia could increase production by another 150,000 bpd. Macron also claimed that Saudi Arabia would not have a huge additional capacity in the next six months. However, official figures for both OPEC producers contradict this narrative. Saudi Arabia produces 10.5 million bpd, with an official capacity of between 12-12.5 million bpd. The UAE produces about 3 million bpd, claiming to have a capacity of 3.4 million bpd. The two countries’ back-up production is still officially around 3.9 million bpd together. Most analysts, however, have been questioning this for years. Examining OPEC + ‘s production targets, the group has not been producing at agreed levels for months. At the forthcoming Middle East and North Africa-Europe Energy Dialogue in Jordan, Al Mazrouei of the United Arab Emirates said that OPEC + was running 2.6 million barrels a day from its production target. This means a possible shortage in the market, which could increase even more if the internal turmoil causes a further reduction in production. For July-August, OPEC + agreed to increase production by another 648,000 bpd, which would mean that the overall reduction in production during the COVID-19 pandemic of 5.8 million bpd has been restored. Whether OPEC + will be able to reach this level in the coming weeks remains very uncertain. Pressure will mount in the coming days as Al Mazrouei’s statements seem to disprove allegations of a lack of surplus capacity, but as always “where there is smoke, there is fire”. A possible lack of overcapacity or no availability at all, coupled with an expected NOC force in Libya in the Gulf of Sirte and a halt to Ecuadorian oil production (520,000 bpd) in the coming days due to anti-government protests, is likely to lead to oil price. There is still some optimism in the markets for a real supply-demand contraction, as high levels of inflation and a possible global economic slowdown could lead to lower demand. So far, however, optimism has not materialized, and demand continues to rise, even as petrol and diesel prices break historical lows. The opening up of the Chinese economy, global gas shortages and higher temperatures in the coming weeks, combined with normal demand-driven demand in the US and EU, are likely to push oil prices higher. OPEC’s future is at stake if surplus capacity is really depleted. For years, analysts (including myself) have been warning of a lack of upstream investment worldwide. This has already led to lower production capacity of independent oil companies, like most ILOs, and for national oil companies, the situation seems to be similar. Although Saudi Aramco, ADNOC, and a few others have maintained their upstream (and downstream) investments over the past decade (even during COVID), other major OPEC producers have seen declining investment budgets or even full-scale crises. Most OPEC producers could still increase their total production, but only for a limited time. Where most of the surplus capacity is based on short-term, partly to avoid long-term stockpile destruction, the current oil crisis is a much more protracted long-term issue. Western sanctions on Russia, combined with existing sanctions on Venezuela and Iran, will hurt markets for years to come. There is no quick fix to the current crisis in the oil market, and even lifting sanctions on Venezuela or Iran will not lead to significant increases in volume. At the same time, increased Western political intervention in the already troubled market will also hit volumes. The growing call in the US, UK and EU for an unexpected tax on oil and gas companies will not only limit further upstream investment but will also lead to higher pump prices. Consumers are not going to feel positive about prices and can expect steadily rising energy bills in the coming months. No OPEC statement in the next two days will be able to allay market concerns. The future of OPEC depends entirely on its ability to stabilize markets. There are currently no cartel options available. Without new oil production hitting the markets any time soon, OPEC leaders MBZ and successor to the throne Mohammed bin Salman must try to maintain the illusion of surplus capacity. If it is revealed that the surplus capacity is below 1.5-2 million bpd, the future of both OPEC and the oil markets will be bleak. By Cyril Widdershoven for Oilprice.com More top readings from Oilprice.com: Read this article at OilPrice.com