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14/10/2022 - It is not OPEC you know; “It is OPEC+”

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After it could reach 93.7$ on OPEC+’s cut by 2m bpd, WTI came again under pressure trading now near 86$ on continued worries about the global economic outlook and the demand for oil.
While the Fed is still appearing on its same track of tightening for fighting the inflation persistence.
As what we could see from Sep US CPI core rising by 6.6% showing wider range of inflation upside risks not only the broad figure of it which came again higher than expected recording 8.2% year on year in September, while the consensus was referring this time to 8.1%, after rising by 8.3% in August.

The criticized decision of OPEC+ by US has been met by Biden’s decision to release another 10m barrel in November of its inventory which is at its lowest levels since 1984, making any new decision of that type much more difficult and giving it less options to help others outside US in Europe.

Biden’s administration decision was expected to replace its current working decision which has been taken last March to release 1m barrel a day of its inventory daily for 6 months starting from the beginning of last May and now we are getting closer to the end of its act.
While the US inventory rising itself is historically important element for curbing the prices and now, we are ahead of new congressional elections next month can tend to the republican party.
As this administration failed to push the US energy companies to increase their production and raise the number of their working rigs, asking uselessly in the same time for production rising from OPEC+!

OPEC+ which is to be backed by Russian existence in it till the end of 2023 is looking now stronger and more liberal in taking their decisions than before, when OPEC was carrying most of the global economic recovery costs by enduring Oil prices at 30s or may be lower below the cost of producing to boost economic demand for recovery can later help the prices.

Now it is not looking the same cycle we used to see, as the energy minister of Saudi Arabia the prince Abdelaziz bin Salman said last August within WTI slide to 80s Area by direct and clear way that these prices do not reflect the market fundamentals, after the Ukrainian crisis and the group will look into cutting production in September and they did by 100k initially in September meeting.

As WTI 80s area vulnerability threaten the fiscal situation of many OPEC+ members such as Saudi Arabia which has built its new budget on 76$ per barrel which is nearly 8 dollars below WTI prices.

After they were raising the production monthly by 400k per day since the beginning of August 2021 and later in last June, it had decided to raise by 432k, before adding 648k in last July and also in August, while the final adding was by 100k last September, before starting the cutting by rolling back this 100k from the beginning of this October.

The group which could not even reach that wanted level of production of September is now required to lower its production by 2m bpd “1.273m of them from OPEC and 727k from the rest of OPEC+” from last August 43.856m bpd produced level.
So, the decision looks surely good for that members which could not even reach their quota production in the recent months and on the top of these members certainly Russia which is required to produce from the beginning of November 10.478m bpd down from its 11.004m production roof, while it could not produce more than 9.77 last September.
While more than half of that 2m bpd cut will be done by Saudi Arabia, Iraq, Kuwait and Emirates.
Tangibly, OPEC+ added 170k last September but the gap between quotas and the production was as the same as August at 3.6m bpd.

The next ministerial meeting of OPEC+ will be next Dec. 4 and surely in will be closely watched by God’s will.



 

Kind Regards
Global Market Strategist
Walid Salah El din

 

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