MARKET WATCH: NYMEX crude oil gains $3/bbl after OPEC meeting
Light, sweet crude oil prices for August escalated by more than $3/bbl on the New York market June 22 after OPEC announced its members agreed to roll back overcompliance with production-cut targets established in November 2016.
OPEC and some non-OPEC members, including Russia, had agreed to collectively reduce their production by a total of 1.8 million b/d of which OPEC’s share was 1.2 million b/d based on October 2016 production.
After concluding their meeting in Vienna on June 22, OPEC members said they collectively agreed to 100% compliance, but no more than that as of July 1. OPEC estimated compliance during May was 152%.
Regarding the pending production increase, OPEC officials told reporters on June 22 it would be less than 1 million b/d, but they gave no specific number. They also did not outline specific allocations for specific producers.
Saudi Arabia and Russia on June 23 met for an OPEC-on-OPEC meeting. Saudi Oil Minister Khalid al Falih said Saudi Arabia is determined to put additional barrels on the market.
“It is clear that Russia is going nowhere and will continue to be the co-chairman of the Vienna Alliance,” said RBC Capital Markets analyst Helima Croft. Russian Oil Minister Alexander Novak is scheduled to meet with US Energy Sec. Rick Perry in Washington, DC, on June 26.
ESAI Energy LLC analysts estimate OPEC production actually fell by 2.2 million b/d since the production-cut targets were implemented. This includes Venezuela and Angola, neither of which has any spare production capacity.
“This appears to mean an increase among the voluntary overcomplying countries of 450,000 b/d with the bulk coming from Saudi Arabia, Kuwait, and UAE,” ESAI analysts said.
“We expect Saudi Arabia to add 130,000 b/d, Kuwait 160,000 b/d, and UAE 70,000 b/d,” said ESAI Energy analyst Amrit Naresh. Venezuela and Angola’s production is expected to continue declining to be only partially offset by rising production in Iraq.
Iran and Iraq were granted exemptions from the production-cut targets.
Croft said Iran confirmed that its key customers had been asked by US President Donald Trump’s administration to halt, not simply scale back, their Iranian purchases. Iran received little in return for abandoning its early threats to walk out of the OPEC meeting, Croft said.
“Its only victory was to ensure…a return to 100% compliance and not provide any new output numbers,” Croft said. “It was Russia that apparently brokered the last-minute deal to keep Iran in the OPEC tent.”
Sara Vakhshouri of SVB Energy International in Washington, DC, said US unilateral sanctions against Iran are scheduled to take effect Nov. 4. She had expected OPEC was to increase its production before that.
“The OPEC agreement is critical for the effectiveness and implementation of US sanctions on Iran oil expects,” Vakhshouri said.
RBC’s Croft noted that Iran failed to secure any public show of support from the rest of OPEC over US sanctions toward Iran.
Energy prices
The August light, sweet crude contract on the New York Mercantile Exchange climbed $3.04 to settle at $68.58/bbl on June 22. The August price rose $2.77 to $67.63/bbl.
The NYMEX natural gas price for July dropped 3¢ to a rounded $2.94/MMbtu. The Henry Hub cash gas price fell 6¢ to $2.94/MMbtu on June 21.
Ultralow-sulfur diesel for July gained 5.5¢ to a rounded $2.12/gal. The NYMEX reformulated gasoline blendstock for July increased nearly 6¢ to a rounded $2.07/gal.
Brent crude oil for August rose $2.50 to $75.55/bbl on London’s International Commodity Exchange. The September contract increased $2.52 to $75.32/bbl. The gas oil contract for July was $638.75/tonne, up $4.75.
OPEC’s basket of crudes averaged $71.89/bbl on June 22, up 93¢.
Contact Paula Dittrick at [email protected].
Paula Dittrick | Senior Staff Writer
Paula Dittrick has covered oil and gas from Houston for more than 20 years. Starting in May 2007, she developed a health, safety, and environment beat for Oil & Gas Journal. Dittrick is familiar with the industry’s financial aspects. She also monitors issues associated with carbon sequestration and renewable energy.
Dittrick joined OGJ in February 2001. Previously, she worked for Dow Jones and United Press International. She began writing about oil and gas as UPI’s West Texas bureau chief during the 1980s. She earned a Bachelor’s of Science degree in journalism from the University of Nebraska in 1974.
