Careful What You Wish For Saudi Arabia, Now Hoping For $100 Oil

This morning WTI prompt futures traded over $68 bbl, the highest in over 3 years on news Saudi Arabia wants crude at $80 and then $100 a barrel. The clear winner here is American shale producers and exporters should this all happen.

This morning WTI prompt futures traded over $68 bbl, the highest in over 3 years on news Saudi Arabia wants crude at $80 and then $100 a barrel. The clear winner here is American shale producers and exporters should this all happen.

OPEC Oil TargetsOPEC Target $80 and $100 Oil = $75 and $95 WTI at today’s Brent WTI Cross

Crude oil futures have been on a steady march higher for months now, partially due to a weak U.S. dollar, partially due to risk on investors and the biggie record exports from America. Here’s the thing that is the big unknown, the U.S. has only just started exporting. Reuters reported overnight that three industry sources say Saudi Arabia wants $80-100 oil and will carry on with no changes to the OPEC, Non OPEC supply as the end date approaches.

US Crude Exports March 2018

Source: RonH Tableau

Crude Exports bpd April 2018

 Source: Ron H Tableau

Saudi should be careful what they wish for, there are two stand out winners here, the U.S., specifically Texas and Russia, desperately needing higher oil as sanctions are biting, and biting hard.

OPEC MOMR Feb Supply

Recall the Organization of the Petroleum Exporting Countries (OPEC), Russia and other producers began to reduce supply in January 2017 to erase the oil glut. This was extended until December 2018 and they meet in June to review policy. The U.S. has been producing at a sprint to record highs. For it’s part OPEC is nearing the original target of the pact  which was reducing industrialized nations’ oil inventories to their five-year average. You can bet your last barrel that none of the pact members saw the American response.

Don’t forget OPEC had tried to bankrupt US producers only a few years ago. They clearly didnt understand American oil. You can bet from Houston to Odessa and back they haven’t forgotten either.

Shale Basins EIA

The obvious conclusion here is to ignore the shale elephant in the room as the Saudis are intent to influence the valuation of the stop-go IPO of state oil company Aramco.  Brent oil prices have moved even higher as the BrentWTI spread moved against WTI. Brent is trading over $73 a barrel, the highest since November 2014. 

From Reuters: Two industry sources said a desired crude price of $80 or even $100 was circulated by senior Saudi officials in closed-door briefings in recent weeks. “We have come full circle,” a separate high-level industry source said of the change in Saudi thinking. “I would not be surprised if Saudi Arabia wanted oil at $100 until this IPO is out of the way.”

Should the Aramco IPO be successful then there is the matter of Vision 2030, the economic reform plan of Crown Prince Mohammed bin Salman.  Oh and don’t forget the Yemen war or the bills for all the weaponry from the US industrial military complex.

OPEC and Saudi Arabia guidance is off the record, and from industry sources who have discussed the issue with Saudi officials. Notably always released and influential times. Case in point, the day of US EIA oil storage reports and smack between WTI options and futures expiration. A coincidence I think not. Much of the more ‘market focused’ strategy comes from the slew of meetings at CERA 2018.

“I personally think that now $70 is the floor for oil prices,” a second OPEC source said. “But OPEC is unlikely to make any changes in June, maybe by the end of the year. The market still needs support.” Reuters reported.

OPEC and its partners meet next on June 22 to review policy and before then a ministerial monitoring panel gathers in Jeddah, Saudi Arabia, on April 20.

While OPEC touts the deals success, much has been the unforeseen collapse in Venezuelan production thus OPEC can conveniently say compliance has reached 150 percent, production has been cut by about 1.8 million barrels per day, 600,000 bpd more than pledged.

“We will know what will be the good price when the market is balanced and we have enough investments,” the United Arab Emirates’ energy minister, Suhail al-Mazroui, told Reuters last week. “We need to have more investments coming.” 

The Jeddah meeting of the Joint Ministerial Monitoring Committee is unlikely to change the parameters for assessing the deal’s success, Mazroui and other OPEC officials said, and sources see little chance of a major tweak in June. “Even if we reach the five-year average before June, it does not mean we just go and open the taps,” a third OPEC source said. “We have to test it.” 

In oil there is an important thing to remember, nothing is as it seems. Venezuela and US production were unexpected a year ago. Which biruifcation will oil prices take over the next year? Saudis, be careful what you wish for.

Source: Reuters Ron H Tableau TradersCommunity

From The TradersCommunity Research Desk

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