Oil commentary - 13 April 2020
Morning all. Brent is trading this morning at $31.66 up 0.18 from Thursday's close and WTi is trading up 0.36 at $23.12. So, the deal to end all deals has been put in place. And no, I'm not referring to the latest DFS sale (is there ever a time when there isn't a sale on at DFS?). I'm referring to OPEC+, where everyone has kissed and made up, Mexico have stopped throwing a paddy and Russia and Saudi are back, together again. Ahhhh. Production cuts of 9.7mn bpd have been agreed supposedly. The thing is though that there hasn't been any official word yet from OPEC as to the exact details and who will exactly cut what. This seems dangerous to me, that's like giving a man the task of doing the weekly grocery shopping with no prewritten list, he's going to come back with a bag of oranges, 20 sausage rolls and some bread. Dangerous. This has been reflected in trading this morning, initially we rallied up to $34 per bbl but have since fallen dramatically, I wouldn't be surprised if Brent dropped below $30 over the course of the next few days before an OPEC minister or two come out with more details on the cut and we get another boost again. The cuts were never going to be of the same magnitude as to what demand has fallen by, nobody thought that but it is clear for all to see that the cuts, in the short term at least, are not enough to bring the market in to any kind of balance, not even close to it actually. I wonder though - was this a stroke of genius on the part of OPEC+? If the cuts were deeper then flat price would have rallied and US energy producers get a helping hand. Have they cut just about enough in the hope that prices stay low resulting in more shale producers to suffer? Meaning, by default, that US energy production drops? I would have to answer that as yes, I'm sure that was on the minds of quite a few of the people on that Skype call. The biggest issue though remains demand. The initial OPEC cuts are for a period of two months - are they saying that by early July that demand may come back? I highly doubt they are trying to say that, they are merely postponing a problem until the start of Q3, I imagine though that if prices remain sub $40 that we will hear a lot of noise from most ministers involved in the new agreement before the next meeting. Keep your eyes on the headlines. For those of you who haven't seen it yet, you can read my thoughts on the OPEC+ deal in more detail here - https://www.dhirubhai.net/feed/update/urn:li:activity:6655084667575857152/
Good day, and week to all.