Oil commentary - 6 January 2020
Morning all. Brent is trading this morning at $53.93 up 0.34 and WTi is trading up 0.16 at $50.09. “Leave it to me: I’m always top banana in the shock department.” The words of Truman Capote? You'd be right. But also, the words of Saudi Arabia's energy minister, Price Abdulaziz Bin Salman. If anybody reading this commentary says "yeah, but that was always going to happen" then I shall have you sectioned, ok? WHOAH! What a start to the year, eh? To the uninitiated, I am of course referring to the outcome of yesterday's OPEC+ meeting, version 2.0. Where it was agreed that Russia and Kazakhstan can produce a smidge more (a total of 150kb per day between them) come February, but that Saudi Arabia will voluntarily cut an additional 1mn bbls per day. I mean talk about a way to get any short sellers to start January "ouching like hell". Ouchy. It is a very interesting one though. Does it set the tone for the rest of the year? This is the $60 per barrel question I suppose, isn't it? I could talk for hours about the questions that are raised after yesterday's meeting, but I know you all have jobs to do so here are my take aways. Why would Saudi voluntarily cut an additional 1mn bbls? It is clear to me that the powers that be within Saudi see oil demand not picking up as quickly as other members. So, they have stepped up and ensured that prices will stay around current levels as a pragmatic approach to any negative news about further lockdowns. Clever. Why would Russia and other want to increase supply though? I mean the list is endless but let's say that shutting down oil wells when it's minus 500 degrees in Siberia is quite a task. What do Saudi Arabia think about prices being at levels that encourage other producers, namely those over the other side of the pond, to increase production? This is the kicker in my opinion. We all know that for the last few years US oil production and US oil producers are able and more than willing to fill voids created by OPEC production cuts. At what point, or indeed, at what price levels does that tap start to turn? Have a think about that, won't you? Stats later, apparently a huge build on products this week, but who cares? All those negative nellies will be ouching like hell. Good day y'all.