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April 22, 2018
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In This Newsletter

1)  Interview on Bloomberg Radio on the implications of OPEC's recent meeting for oil prices and oil production (Bloomberg)
2) Interview on NPR's Marketplace about oil prices and OPEC (NPR)
3) Trump tweet blames OPEC for higher oil prices and market reaction (Forbes)

4) Saudi crown prince woos Aramco, Lockheed and others (CNBC)
5) Friday's OPEC meeting sets the tone for oil production (Investing.com)
6) Geopolitics, media, market forces: what's really driving oil prices? (Investing.com)
7) Currency crisis in Iran could threaten political stability (Forbes)
"Saudi, Inc." is now available! Order your copy from Amazon and Barnes & Noble.

Audio book and Kindle editions are available as well.

Trump Tweet Blames OPEC For Higher Oil Prices, Market Responds

(also on Forbes.com)






Saudi crown prince woos Amazon, Lockheed and others to build a tech hub





Friday's OPEC Meeting Sets The Tone For Oil Production In 2019
(also on investing.com)

This past Friday, April 20, about 20 OPEC and non-OPEC oil ministers met in Jeddah, Saudi Arabia to discuss their oil production cut deal. The Joint Ministerial Monitoring Committee (JMMC) will make a recommendation to OPEC about whether or not the production cut deal should be extended into 2019. The meeting will provide substantial guidance on how OPEC and its partners will proceed at their June 2018 meeting in Vienna.

Many bank analysts are declaring the oil glut largely resolved. This, they say, is evidenced by the fact that geopolitical tensions in the Middle East pushed oil prices up last week. Similar tensions last summer did not result in nearly as much of a jump in oil prices because global oil stocks were higher. The IEA agreed, saying that its data on global oil stocks supports the conclusion that OPEC and its partners have met their goal.

From OPEC’s perspective, outsider input can be helpful, but OPEC’s own data, forecasts and goals are what really count. Ultimately, Saudi Arabia, OPEC’s most powerful member, will likely set the policy.

Saudi Arabia has led OPEC in reducing oil production voluntarily—an average of 574,000 barrels per day—according to S&P Global Platts. The question is whether Saudi Arabia wants to continue the production cuts or not. Recent talk from the Saudi oil minister suggests that he wants to continue the production cuts into 2019 because he does not think that investment in oil projects has returned to sufficient levels.

Russian input will matter as well. It is not clear where Russia stands on the production cuts at this point. In January 2018, when the JMMC met in Oman, Russia pushed for OPEC to discuss ending the production cuts at the end of this year. Since that time, however, the talk has shifted. Russia and Saudi Arabia are now discussing a long-term framework for cooperation and collaboration on oil and other energy matters. A long-term agreement on production cuts is unlikely, but a long-term framework for cooperation is more likely. Russia is no longer calling for an end to the production cuts.

One option OPEC and its partners may consider is keeping the production cut total requirement while relaxing the country-by-country quotas. This would allow some flexibility for countries like Azerbaijan, Kazakhstan and Iraq who have chafed at the imposed quotas and frequently overproduced.

OPEC’s success at curbing oil production has largely come at the hands of involuntary cuts from Venezuela and Angola. Angola is experiencing a decline in production as its oil fields age and produce less oil. Venezuela’s March oil production, according to S&P Global Platts, fell by 80,000 barrels per day to only 1.49 million barrels per day. Outside of the state-owned Petróleos de Venezuela (PDVSA) strike in 2002 and 2003, this is the lowest level of production for the country's oil and gas company that Platts has observed since it began measuring OPEC’s oil production. This is largely due to the financial crisis in Venezuela that will probably continue for some time. The production decline in Venezuela is likely to continue in April, particularly as PDVSA oil workers are now resigning en masse.

By relying on involuntary oil production cuts to satisfy the overall production cut requirement of 1.8 million barrel per day, OPEC and its partners could conveniently continue to meet their “goals” and maintain the framework of cooperation while also satisfying the desire for higher production from some of its more unruly participants.

Look at last week’s JMMC meeting to set the tone for OPEC’s upcoming regular ministerial gathering in Vienna on June 22. It gives us the first look at what to expect for global oil production in 2019.

Geopolitics, Media, Market Forces: What's Really Driving Oil Prices?
(also on investing.com)

Oil prices reached new highs on Tuesday as the market reacted to a combination of geopolitical, media and market forces. WTI hit $65.60, a gain of 3.38%, while Brentclosed up 3.38% at nearly $71. Some declines should be expected as it becomes evident to the market that only one of these factors truly impacts global oil supply.

1. Syria Conflict

Syria, which is currently embroiled in a years long civil war, does not produce much oil, nor do any significant oil and gas pipelines run through the country. However, news of a potential U.S. strike against the Assad regime in retaliation for its recent alleged chemical attack clearly pushed oil prices higher on Tuesday. The fear is that a response by the U.S. and its allies would escalate the situation, which has pushed oil prices up.

A multinational bombing campaign in response to the alleged chemical weapon attack could take place in the next 72 hours. Oil prices could remain elevated in anticipation of such a campaign. Markets could also see a spike in oil futures if the U.S. and allies do bomb Syria. However, the conflict in Syria doesn't actually impact global oil supplies so any gains will likely be reversed in short order.

2. Bloomberg Report

Oil prices also rose in response to a Bloomberg article which reported that Saudi Arabia is seeking oil prices of $80 per barrel. The headline read “Saudi Arabia Signals Ambition for $80 Oil Price,” but the article itself made it clear that the Saudis have not actually targeted $80 as their preferred price.

The $80 figure appears to be a feeling that “people who have spoken to [Saudi officials]” arrived at based on “conversations” with Saudi officials. Regardless of whether Saudi oil minister Khalid al Falih is actually targeting the $80 per barrel price point, the article and its headline helped push oil prices closer to that goal. However, Saudi Arabia’s words and actions at the next OPEC monitoring committee meeting, to be held April 20, are what really matter. The monitoring committee is expected to make a recommendation about the future of the OPEC—non-OPEC production cut agreement.

3. Saudi Production

The Saudi oil ministry announced that it plans to keep its oil exports consistent at just under 7 million bpd in the month of May. Saudi Arabia produces more oil than that, but has been slowly funneling more of its own crude into domestic refineries and petrochemical plants for export as refined products.

This helps Saudi Arabia maintain revenue while simultaneously supporting higher crude oil prices. Of all three issues, this is the only one that will actually impact the supply of oil on the market in coming weeks.

Iran Currency Crisis Could Threaten Political Stability

(also on Forbes.com)




Don't forget to order Saudi, Inc. on Amazon or Barnes & Noble
About Ellen R. Wald, Ph.D.

A consultant and columnist on geopolitics and energy markets, Ellen writes regularly for several major publications. She is a non-resident scholar at the Arabia Foundation and an adjunct professor of social science at Jacksonville University where she teaches Middle East history and policy classes. 
 



Dr. Wald is a frequent commentator on radio and television programs. She offers discussion and analysis of contemporary energy issues, with special emphasis on the Middle East. To arrange a media appearance or to discuss her consulting services, please contact her through her website.
 
About "Saudi, Inc."
 
“Saudi, Inc.” presents the history of Saudi Arabia through the central figure of Aramco, the oil company that brought riches, success, and regional dominance to its ruling family, al Saud.  It will be released in 2018, as Saudi Aramco prepares to launch its much-anticipated IPO, expected to be the largest in history with a possible valuation of up to $2 trillion. The book debut will also come amid the Kingdom’s massive investment in its Vision2030 plan for economic diversification; the rebirth of an economic and diplomatic relationship with the U.S. worth hundreds of billions of dollars in investment in both directions; and preparation by the next generation to take leadership positions in the Kingdom – transforming society, business, and the state.
 
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