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Chaos: OPEC+ fracas Cancelled output adjustment meeting has oil markets in rollercoaster mode Steve Sutherlin Petroleum News
Alaska North Slope crude slid $1.30 to close at $73.92 per barrel July 7, as supply uncertainty whipsawed oil markets due to a breakdown of an output adjustment meeting of the Organization of the Oil Exporting Countries and allied producing countries. West Texas Intermediate fell $1.17 to close at $72.20, and Brent shed $1.10 to close at $73.43. Trading was erratic; earlier in the day WTI was up more than 1.5%, approaching $75.
July 6 trading was equally choppy. WTI hit a 6-year high early on before reversing to close 2.5% lower.
The OPEC+ meeting, originally scheduled for July 1, was expected by analysts to be routine event with a likely outcome of a 500,000 barrel per day increase of production by the group in August. OPEC+ is currently maintaining a 5.8 million bpd production curtailment, down from 9.9 million bpd in April 2020.
The United Arab Emirates reportedly requested a larger increase in its own production under the supply cut agreement, but Saudi Arabia refused the demands.
Instead, the meeting was delayed and extended, and then postponed indefinitely.
“The 18th OPEC and non-OPEC Ministerial Meeting has been called off,” OPEC Secretary General Mohammad Sanusi Barkindo said in a July 5 letter to heads of delegation of OPEC member countries and non-OPEC oil producing countries participating in the OPEC + Declaration of Cooperation.
“The date of the next meeting will be decided in due course, and we will inform you accordingly,” Barkindo said.
Brent prices rose initially on the cancellation announcement July 5, before turning lower in volatile trading. U.S. markets were closed due to the July 4 holiday.
WTI and Brent continued trading lower as Petroleum News went to press early on July 8. WTI was down 52 cents to $71.68, while Brent fell 43 cents to $73 at 7:20 a.m. CDT.
The slide was swift and substantial. On July 2, ANS ended the week on a high, up 30 cents to close at $76.83, WTI fell 7 cents to close at $75.16, and Brent rose 33 cents to close at $76.17.
Future direction uncertain The turmoil surrounding the OPEC+ negotiations will likely affect prices, perhaps quite dramatically, in the future, and the price direction is an unknown, according to former U.S. Energy Secretary Dan Brouillette.
“You could very easily see oil hitting $100 a barrel - potentially even higher,” Brouillette said in a July 7 CNBC interview, adding that it’s “equally possible” that prices could collapse.
“If there isn’t any agreement on production, and countries tend to go off and do their own thing, or do their own production, you could have a collapse of oil prices,” Brouillette said.
The U.S. Energy Administration said in a report released July 7 that it expects production to increase by more than global oil consumption.
“We expect rising production will reduce the persistent global oil inventory draws that have occurred for much of the past year and keep prices similar to current levels, averaging $72 per barrel during the second half of 2021,” The EIA said. “However, in 2022, we expect that continuing growth in production from OPEC+ and accelerating growth in U.S. tight oil production, along with other supply growth, will outpace growth in global oil consumption and contribute to declining oil prices. Based on these factors, we expect Brent to average $67/b in 2022.”
According to a Bloomberg report, The EIA said that the forecast was completed on July 1, before OPEC+ cancelled its meeting, but that it still expects OPEC+ to continue to increase production beyond July.
U.S. shale producers have been treading lightly, “notably restrained so far this year even as oil surged past $70 a barrel,” Reuters reported July 7. “They have maintained a lower level of production after vowing to investors that they would hold the line on spending to boost returns.”
Shale companies have been actively hedging this year, but many have been burned. A group of 53 producers followed by Wood Mackenzie have combined losses of $3.2 billion in the first quarter on hedge contracts. The group has hedged 32% of expected 2021 production volumes, less than at the same time a year ago.
WoodMac said producers were likely to leave remaining 2021 production unhedged, sell at current prices, and focus their hedges on 2022.
Air travel hits 2019 levels The U.S. Transportation Security Administration said it screened more than 10.1 million travelers over the Fourth of July holiday weekend, which includes traveler screenings from July 1 to July 5.
“This milestone represents 83% of travel volume for the same 5-day holiday period in 2019,” the TSA said.
July 1 was the busiest day of the weekend. TSA screened 2,147,090 people, 103% of the 2,088,760 travelers screened on Thursday of Fourth of July weekend in 2019.
“This holiday weekend, TSA saw over 10 million passengers travel safely through security checkpoints,” TSA Administrator David Pekoske said. “With some airports already exceeding 2019 travel volumes and many not far behind, we expect the summer to remain busy for travel.”
Jet fuel demand has been a pandemic recovery laggard compared to gasoline and motor fuel demand.
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