Is it such a fantastical notion to think that OPEC have embarked on a campaign of lowering expectation? Wandering around the newswires dropping bearish bombs such as ‘there may be a further delay in the scheduled meeting, a rollover is a possibility’, and the admission that ‘talks are proving difficult’, does seem way beyond the necessity of truth if keeping bears away from the door is your aim. Those that are avid fans of political TV shows such as ‘The West Wing’ or ‘House of Cards’, will have seen such ploys when administrations are trying to dampen down a candidates’ or a legislative bill’s prospect in winning or passing or, and this is interesting, when there is a hidden sting in the tail.

Theories of conspiracy aside, the winter at last came to the rescue of oil prices yesterday as a storm in the Black Sea closed oil terminals which Reuters estimate is shutting in around 2-million bpd, Kazakhstan have reduced output by over 50% since Monday and individual grades have reportedly seen improvement with Azeri Light and Urals finding bids and ultimately giving a bolster to basket prices. Staying with shut-ins, and as Reuters as source, the US Coast Guard estimates that 3% of the Gulf of Mexico’s output remains locked, around 60,000 bpd, as the aftermath of the recent million gallon leak continues. Frankly, the market has seen storms come and go in the Black Sea and if it was not such a sensitive time for oil prices, then the US issue would be largely ignored, but with an undoubted negative bias pervading and many reports of institutions running short positions, bullish nuggets will have an outsize influence.

Helping oil prices to find some reprieve is the API data overnight. Crude inventory drew by 0.8mb which was as expected, Gasoline drew -0.9mb against a +0.2 call, Distillate built 2.8m against a 0.4mb call, but what is surprising is draw in Cushing of 0.5mb which is very different from the call of TankWatch’s prediction build of over 3mb. The draws, if confirmed by government data later, might just give pause for thought from those that have embarked on a bearish attitude to oil, but if the all-important US production comes in again at the startling 13.2mbpd, a US inventory bump will be short lived.

As always, those of an Oily bent, must keep an eye on what transpires in the macro world which for once is proving somewhat of boon. FEDspeak abounds, and wires have taken particular attention to the attitude of the Fed board member Christopher Waller, who for much of the run higher in US interest rates has been a mainstay for hawks. That is up and until yesterday, when in a talk he suggested that rate cuts could come in a matter of months, the usual flag bearers of such talk have reacted predictably, yields and the USD fall away and bonds and bourses put in a positive spurt. However, the macro world will have to negotiate some big ticket news in the next couple of days which include the gamut of consumer confidence, inflation markers and GDPs to name a few, but nothing in the wider suite will usurp whatever OPEC decision emerges, if indeed there is one.
 

Brazil among others are not signed up to cuts

One would be hard pressed to avoid not talking on, not reading about and not involving one’s mind in the flow charts of what will happen if OPEC do this, or OPEC do that. The troubling issue for thoughts of Saudi leading a willing club along the path of cuts is that wherever one looks, there does seem to be either replacement crude about to come to market next year, or currently shuttered supply that is about to find recourse in political, national and financial intrigue and resume travel from oil wells to oil ports.

Although there does always seem to be a many-guised, last-minute hitch in getting Kurdistan crude oil to Ceyhan, the Turkish oil hub, we must doff our hats in the direction of the Iraqi Oil Minister, Hyan Abdel-Ghani, who never tires of being an optimist with recent announcements, such as seen on Reuters in early November, that a Kurdistan Regional Government (KRG) and foreign oil company agreement with all parties to allow oil production to resume from Kurdish oilfields would happen in 3-days. What 3-days he meant have not come to pass, and much of the blame does lie with Baghdad as it tries to get existing contract holders to agree to new less attractive terms, but the continuation in attempts to make this happen does bring the old proverb to mind that there is no smoke without fire and any roll or increase of OPEC+ cuts into 2024 might just be neutered if this 450,000 barrel per day reservist gets a call up to enter the fray.

The Pre-Salt Reservoirs of Brazil appear to be at last living up to expectation that was so heaped on them when first discovered just under 20-years ago. Lying off Brazil’s southeast coast in the Atlantic Ocean, the increasingly successful drilling of these undersea reserves are the main reason why output has increased to approximately 3+ million barrels per day, but the aspirations of Petroleo Brasileiro S.A. (Petrobras), the state-owned oil company, and the Brazilian government show quite the ambition by recently projecting that output could reach over 5 million bpd before the decade is out, and last week, this ambition was given substance as Petrobras announced a 2024-2028 strategic plan including $102 billion investment. Bloomberg, using Kpler shipping data, reported crude exports at a 3-month high in October, largely due to refinery maintenance, but the amount reached 2 million bpd and if the production intent as outlined above is matched with exports, Brazil will continue to be a force to be reckoned with when considering where spare barrels might come from if OPEC do indeed extend cuts.

It is not always near future-crude oil exports substitutes that act as worrying obstacles for OPEC, current production output from established sources remains stubbornly high. According to Bloomberg, CPC’s terminal on Russia’s Black Sea loaded 57.5 million tonnes of crude year-to-date, up 13% from 51 million tonnes against the same time frame for last year and is an equivalent of 1.28 million barrels per day. And what of the United States? The very impressive run of 13.2 million bpd production has been the greatest torpedo in the side of oil forecasters looking for tightness in the fourth quarter of 2023 and into next year. One need only take heed of how Midland is governing the pricing of the North Sea Platts window, and its constant pressure, to see the influence of exported US crude. If OPEC do in fact delay their meeting again, it is because the available countries that have crudes to take market share seem to carry on increasing, therefore, solid non-OPEC supply continues to support healthy non-OPEC financial supply, much to the chagrin of the Saudi Energy Minister.

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