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India, not China, will lead future demand for energy

China is hungry for energy. But India is even hungrier.

India will need more additional energy to fuel its economy between now and 2040 than any other country, according to OPEC. It’s the first time that India has topped China as the primary driver of energy demand.

While India has captured the top spot, the cartel said the shift if more about changes in China.

 

“This change in the leading position is primarily the result of the downward revisions made for China… rather than a more positive outlook for India,” OPEC said in its World Oil Outlook 2040.

 

China is forecast to need less energy than previously thought because its government is making big moves toward renewable sources.

The country — a major polluter — has embarked on a campaign to shut down several existing coal mines and restrict the construction of new ones.

China has also pledged to get 20% of its total energy from clean sources by 2030 — which should improve efficiency.

“Recent signals and specific actions being undertaken by China… have raised the credibility of government endeavors to combat domestic pollution problems, contribute to efforts to reduce global emissions and use energy more efficiently,” OPEC said.

 

India has also set ambitious renewable energy targets, but it is still largely dependent on dirty fuels like coal. OPEC says that its demand for coal will remain high.

China and India are among several countries aiming to ditch gas and diesel cars within the next two decades.

OPEC, however, said that will “only partially” reduce their demand for energy.

 

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India is freaking out about rising oil prices

A spike in oil prices has the world’s third largest consumer of energy worried.

India is seeking assurances from Saudi Arabia, OPEC’s biggest producer, that oil prices will remain “stable and moderate,” its government said in a statement on Friday.

Energy minister Dharmendra Pradhan spoke with Saudi oil minister Khalid Al-Falih late on Thursday to “express his concern about rising prices and its negative impact on consumers and the Indian economy,” it said.

 

World oil prices have spiked by nearly 20% in 2018, and are up more than 40% over the past 12 months. President Donald Trump’s decision to pull out of the Iran nuclear deal — leading to concerns about Iranian supplies — and a collapse in Venezuelan production have accelerated the price rise in recent weeks.

Brent crude, the global benchmark, crossed $80 per barrel on Thursday, while US crude futures hit $71.60 per barrel early Friday, their highest level since 2014.

 

$80 is ‘way above reasonable’

Oil markets were already getting tighter following nearly 18 months of a deal between OPEC and Russia to curb their output to mop up a supply glut.

“We’re not saying oil should be $25 a barrel, it should be at a price that is reasonable,” Sanjay Sudhir, joint secretary for international cooperation at India’s energy ministry, told CNNMoney. “$80 is way above a reasonable price, this is not a market-driven price.”

 

Al-Falih told his Indian counterpart that Saudi Arabia would work with other OPEC producers and Russia “to “ensure availability of adequate supplies to offset any potential shortfalls,” the kingdom’s official news agency said.

OPEC and Russia discuss next move

Saudi Arabia has been discussing how to respond to the recent market volatility with the United Arab Emirates, the current OPEC president, and they’ll consult with Russia next week on the sidelines of a conference in St. Petersburg, the agency reported. OPEC producers are due to meet in June to review their production cuts.

India has long been a major buyer of Iranian oil, though it has diversified its supply over the past few years through deals with Russia and, more recently, Saudi Arabia. The kingdom’s state oil giant, Saudi Aramco, signed a a $44 billion deal last month to build a “mega refinery” in India with a consortium of Indian oil companies.

Indian concerns about oil price rises are understandable. Low oil prices played a big role in making it the world’s fastest growing major economy in the recent years.

Every $10 increase in the price of a barrel knocks 0.2% to 0.3% off India’s growth rate, according to the country’s latest economic survey.

And growth in energy demand will be faster in India over the next two decades than any other country in the world, OPEC said in its World Oil Outlook 2040 released in November.

 

That demand could be threatened if oil prices keep rising, however.

“[India’s] consumption will struggle to continue at its current pace, should oil prices continue to rise,” analysts at BMI Research wrote in a recent note.

 Ivana Kottasova contributed to this report

 

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The “driver shortage” should be called a “driver squeeze”

 Truck driver stops to have his truck maintained 

Early in my career as a business journalist, covering the metals industry, I was advised not to use the word “shortage” to describe a market. Other terms like “squeeze” were preferred. And it made sense: classic economics would dictate that what was perceived as a shortage was really only a market imbalance that the pricing mechanism would correct by attracting new supply or decreasing demand.

 

When OOIDA discounts the talk of a “driver shortage,” and instead says it is an issue of pay and working conditions, the organization is reflecting this approach. But if they want to say that, then presumably they will be consistent when they’re trying to get a vehicle repaired and can’t find a diesel mechanic because of the “diesel mechanic shortage.” There is clearly a diesel mechanic squeeze, and the numbers of new mechanics aren’t meeting demand. But if there truly can’t be a shortage, that it is just a function of the pricing mechanism, then there is no diesel mechanic shortage, just like there’s no driver shortage.

 

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Forget About Oil at $80. The Big Rally Is in Forward Prices

Forget About Oil at $80. The Big Rally Is in Forward Prices

Brent crude oil grabbed all the attention after spot prices hit $80 a barrel last week. And yet, almost unnoticed, a perhaps more important rally has occurred in the obscure world of forward prices, with some investors betting the “lower for longer” price mantra is all but over.

The five-year Brent forward price, which has been largely anchored in a tight $55-to-$60 a barrel range for the past year and a half, has jumped over the last month, outpacing the gains in spot prices. It closed at $63.50 on Friday.

“For the first time since December 2015, the back end of the curve has been leading the complex higher,” said Yasser Elguindi, a market strategist at Energy Aspects Ltd. in New York. “It seems that the investor community is finally calling into question the ‘lower for longer’ thesis.”

Bob Dudley, the chief executive of oil giant BP Plc, coined the “lower for longer” mantra in early 2015, warning of a protracted period of cheap crude. He later clarified that he meant “lower for longer, but not for ever.”

More to Run

While spot prices fluctuate wildly, often driven by geopolitics such as U.S. sanctions on Iran, the five-year forward usually trades in a narrower range, anchored by longer views about future supply and demand.

Over the past three years, long-dated prices had been weighed down by the belief the growth in U.S. shale production, combined with the adoption of electric vehicles, would keep prices under control.

Investors are now questioning that hypothesis, pushing up forward prices. Over the past month, Brent five-year forward futures gained 11 percent, compared with a 6.8 percent increase in futures for immediate delivery.

“We think there is more to go for the longer date contracts,” SEB chief commodities analyst Bjarne Schieldrop said. “This will send very positive price signals into the whole oil space with higher confidence, optimism and evaluations as a likely consequence.”

Demand Surprise

There are several reasons for the sudden surge in forward prices. Oil consumption is expanding much faster than anticipated, adding growth in two years that would normally take three. At the same, oil investment has dropped significantly over the past three years, particularly in projects that take longer to develop such as ultra-deep water offshore, raising doubts about future supply growth despite the gains in Texas, North Dakota and other U.S. shale regions.

Moreover, a change in marine fuel oil specifications by 2020, which should increase significantly the demand for diesel-like refined products, is further reinforcing the belief among some investors that the oil market will be tighter than expected in the future.

Morgan Stanley Says a Shipping Revolution Has Oil Headed for $90

The buying has sparked a rally in later-dated contracts in the past week-and-a-half that traders say is even more impressive than Brent’s march past $80. The grade for delivery in December 2022 has surged 10 percent since to beginning of the month to nearly $64 a barrel. The December 2023 has risen above $63 a barrel.

The higher forward prices are also catching the attention of some equity investors as they usually use longer-dated prices to value energy companies.

Despite the rally in forward prices, oil exploration and production companies, which typically hedge their production further out in the curve, have remained reticent to buy in, according to John Saucer, vice president of research and analysis at Mobius Risk Group in Houston. Oil producer selling typically puts pressure on the back of the curve.

Investors aren’t just buying outright long-dated futures, but also betting through the options market on much higher prices in the early part of next decade by buying call options. The contracts, which give investors the right to buy at a predetermined price, are popular among commodities hedge funds.

Call options that would profit from Brent rising to $130 a barrel by the end of 2020 traded 2,000 times on Friday. That follows a similar amount of $100 contracts for the same period trading over the past two weeks.

“The war premium at the front of the market masked the fact that future significant demand increases and questions over supply levels equate to higher prices down the line,” said Richard Fullarton, founder of commodity focused hedge fund, Matilda Capital Management Ltd.

–With assistance from Jessica Summers and Sheela Tobben .

To contact the reporters on this story: Catherine Ngai in New York at cngai16@bloomberg.net, Alex Longley in London at alongley@bloomberg.net, Javier Blas in London at jblas3@bloomberg.net.

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Alaric Nightingale, John Deane

 

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Putin Seeks Common Cause With Merkel Over Trump

Putin Seeks Common Cause With Merkel Over Trump

Russian President Vladimir Putin said at a meeting with German Chancellor Angela Merkel on Friday that he would stand up to any attempts by U.S. President Donald Trump to block a Russian-German gas pipeline project.

Berlin and Moscow have been at loggerheads since Russia’s annexation of Crimea four years ago, but they share a common interest in the Nord Stream 2 pipeline project, which will allow Russia to export more natural gas to northern Europe.

A U.S. government official this week said Washington had concerns about the project, and that companies involved in Russian pipeline projects faced a higher risk of being hit with U.S. sanctions.

“Donald is not just the U.S. president, he’s also a good, tough entrepreneur,” Putin said at a news conference, alongside Merkel, after the two leaders had talks in the Russian Black Sea resort of Sochi.

“He’s promoting the interests of his business, to ensure the sales of liquefied natural gas on the European market,” Putin said, departing from his usual approach of being scrupulously respectful when speaking about Trump.

“But it depends on us, how we build our relations with our partners, it will depend on our partners in Europe.”

“We believe it (the pipeline) is beneficial for us, we will fight for it.”

As well as the differences over Nord Stream 2, European capitals are at odds with Washington over Trump’s decision to withdraw from the Iranian nuclear deal. Moscow shares Europe’s position on the deal.

Some commentators have said that a shared opposition to Trump’s stances on Iran and other issues could lead to a rapprochement between Europe and Russia, repairing a relationship badly damaged by the Ukraine conflict.

Merkel, who earlier in the day received a bouquet of pink and white roses from Putin as she arrived at his residence in Sochi, also hinted at tensions between Berlin and the Trump administration.

Asked about differences with the United States over the Iran deal and other issues, Merkel told reporters: “We have a strong transatlantic friendship, which during its history has had to withstand many questions of different opinions, and I think that might be the case now as well.”

While the Russian leader is frequently critical of U.S. policy, he has been meticulous about not attaching blame to Trump personally. Kremlin officials have said in the past the two men have a personal rapport that Putin wishes to preserve.

Pipeline Politics

European states involved in Nord Stream 2 say it is a purely commercial project but the Trump administration say it is helping the Kremlin pursue its political agenda.

The pipeline may result in less Russian gas being transported via Ukraine, depriving Kiev’s struggling pro-Western government of transit fees that are a vital source of revenue.

In a nod to the U.S. concerns, Merkel said Russian gas should still be pumped through Ukraine. “We see Nord Stream 2 as an economic project but it also has implications and that’s why we are working on what guarantees Ukraine could be given,” she said.

Putin said he was willing to negotiate with Kiev about continued transit of Russian gas.

Despite the common ground on Nordstream and the Iran deal, long-standing tensions in the Berlin-Moscow relationship surfaced at the news briefing.

Merkel said she was worried about a new property law implemented by the government of Syria, which is backed by Moscow. Rights activists say the law allows the Syrian government to deprive people who have been displaced by the fighting of their homes.

“That is bad news for people who want one day to return to Syria. We will discuss that intensively and ask Russia to use their influence to persuade Assad not to do that. We must prevent facts being created on the ground,” Merkel said.

Putin a day earlier had received Syrian leader Bashar al-Assad at his residence in Sochi for talks.

At the briefing with Merkel, the Russian president chided European leaders over Syria, saying if they want Syrian refugees living in their countries to return home, Europe had to commit to reconstruction in Syria.

Diplomats say that is a bone of contention, because European governments believe Russia should pay the lion’s share of the multi-billion-dollar reconstruction cost since it is the main military force and powerbroker in Syria.

(Additional reporting by Moscow and Berlin bureaux Writing by Christian Lowe Editing by Richard Balmforth)

 

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U.S. oil rig count holds steady after six weeks of gains

The U.S. oil rig count held steady this week after rising for six weeks in a row even as crude prices soar to multi-year highs, prompting drillers to extract record amounts of oil, especially from shale.

The total oil rig count held at 844 in the week to May 18, General Electric Co’s Baker Hughes energy services firm said in its closely followed report on Friday. RIG-OL-USA-BHI

The U.S. rig count, an early indicator of future output, is much higher than a year ago when 720 rigs were active as energy companies have been ramping up production in tandem with OPEC’s efforts to cut global output in a bid to take advantage of rising prices.

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Shale Drillers Face New Test of Will as Crude Tops $70 Mark

Shale Drillers Face New Test of Will as Crude Tops $70 Mark

With benchmark U.S. crude prices crossing the $70 a barrel threshold on Monday, the shale drillers who helped upend global markets now face a new challenge: Do they stick with promises of fiscal discipline and avoid new production? Or is it time to turn on the taps and reap the benefits of the highest crude prices in more than three years?

U.S. oil traded at $70.37 a barrel at 6:55 a.m. in New York as traders braced for a re-imposition of U.S. sanctions on Middle East crude producer Iran.

In quarterly earnings reports over the last two weeks, producers have modestly upped forecasts for oil and gas output but also mostly kept drilling budgets flat, holding out hope they won’t completely undermine the rally. What do they do now? Here are three ways the industry could react:

Drill, Baby, Drill?

Historically, shale drillers have ramped up output in response to the market, and there’s little reason to believe this time will be different. “It signals to drill. That’s for sure,” said Ashley Petersen, lead oil analyst at Stratas Advisors in New York, in a phone interview. “It definitely signals to them, take advantage of prices while you can.”

Companies are also adding on new hedging contracts, locking in payments for future barrels that will sustain production even if prices slide again.

Stay the Course?

For months, investors have urged exploration and production companies to rein in unprofitable spending. That pressure’s likely to remain, keeping a lid on any increases to drilling budgets, analysts at Houston investment bank Tudor Pickering Holt & Co. said in a note to clients recently.

“Expect little change to messaging or 2018 plans as operators continue to view the rally in crude as a boon to cash flow rather than an opportunity to accelerate growth,” the bank advised. Instead, additional share buybacks and debt reduction are likely to be the top priorities, added RBC Capital Markets analyst Scott Hanold in another note.

The caution is made more likely by the logistical hurdles mounting in the Permian basin, the top U.S. shale play. Shortages of labor, equipment and pipeline capacity had crude from the West Texas region selling at a $12.50 a barrel discount this past week to oil received at the U.S. distribution hub in Cushing, Oklahoma.

That’s meant producers aren’t reaping the full benefit of $70 oil anyway, said Antoine Halff, former chief oil analyst for the International Energy Agency. Add in the increasing size and complexity of shale projects, which lengthen the time for oil to come to market, and “I wouldn’t necessary conclude that this will trigger a huge rebound in supply,” said Halff, now a Columbia University scholar.

Let the Price Wars Begin

After years of watching fees shrink during the industry’s downturn, oilfield servicers — the businesses that frack wells, truck in sand and do other contract work for the shale patch — are likely to demand a bigger slice of the pie.

“Seventy dollars is a very strong signal of psychological recovery,” said Petersen of Stratas Advisors. For service companies, “now is the time to start aggressively renegotiating pricing contracts that they had set when prices were a lot lower.” Higher fees could cut into explorer profits, however, making it harder to keep those aforementioned investors happy.

To contact the reporters on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net; Jessica Summers in New York at jsummers24@bloomberg.net. To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net Carlos Caminada.

 

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US Oil Rush Spurs ‘Triangle’ Trade as Output, Exports Soar

US Oil Rush Spurs 'Triangle' Trade as Output, Exports Soar

Rapid increases in U.S. oil output and exports over the past two years are forcing some traders and producers to try alternative ways of pricing crude.

While the market benchmark remains West Test Intermediate crude delivered in Cushing, Oklahoma, there has been a surge in trading of futures contracts tracking the price differences between WTI and oil sold in Gulf Coast ports like Houston and the Permian shale fields near Midland, Texas.

Holdings of spread contracts on the New York Mercantile Exchange jumped from almost nothing after the U.S. ended a ban on exports in 2015 and domestic output nearly doubled. The transactions reflect big changes in the American market and are fueling calls for a new pricing benchmark linked to the coast rather than Cushing, 500 miles (800 kilometers) inland.

“You have a new triangle that is emerging with greater international exposure by the U.S. to the rest of the world,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London. “As long as the relative spreads between the magic triangle of Midland, Houston and Cushing work, and oil can be reallocated on the basis of price signals, it will be efficient.”

Open interest on futures tracking the difference between Midland and Cushing was 169,000 contracts this week, while the Houston-Cushing spread topped 103,000 contracts, exchange data show. The futures provide an alternative for refiners and exporters to hedge price risk for the crude where they need it.

Traditional Benchmark

Prices in the U.S. have been linked for decades to oil stashed in Cushing’s storage tanks, a central location in a country that had become increasingly reliant upon imported crude. Trading in the benchmark WTI futures and options remains robust, averaging 1.51 million a day in 2018, up 16 percent from a year earlier. Aggregate futures open interest last week was 2.61 million contracts — valued at $176 billion — after reaching a record of 2.69 million in November.

But in recent years, a drilling boom in shale formations turned the U.S. into one of the world’s top producers. Exports went from almost zero as recently as 2014 to more than 2 million barrels a day last month, and tankers now line up in coastal ports to ferry oil across the ocean.

As supplies have increased and crude moved in new directions, some traders are suggesting contracts tied to landlocked Cushing should be replaced with ones that better reflect the flow of physical oil from the Gulf Coast to global markets.

Domestic production has more than doubled from the lows of a decade ago, topping 10 million barrels a day each week since early February. Much of that is from shale deposits, with the Permian alone pumping more than 3 million barrels a day, up from less than 2 million two years earlier.

Exports Surge

Exports reached 2.18 million barrels a day in March, the most since the government ended its ban in 2015. The shipments travel mostly from the Gulf Coast, home to a third of American refineries with a combined capacity of almost 10 million barrels of crude. That’s more than half of what the country consumes.

Companies including Enterprise Products Partners LP and Plains All American Pipeline LP already are adding more tanks to handle increased shipments to the region. In October, researcher Morningstar Inc. estimated Gulf Coast storage capacity would increase this year by 56 million barrels.

“As the demand center shifts to the export markets, it would be more important to have prices on the water, shifting away from Cushing-based prices,” said John Coleman, a Houston-based senior analyst for North American crude oil markets at Wood Mackenzie Ltd.

To be sure, even with the increase in production, the U.S. is still a net importer of crude, which means domestic markets remain a key factor in determining prices. Americans rely on foreign supplies for more than a third of the oil they consume, though that’s down from two thirds a decade earlier. Most of the foreign crudes are heavy, high-sulfur grades from Canada, the Middle East and Latin America that many U.S. refineries are designed to process, rather than the higher-grade light, low-sulfur WTI.

WTI futures also are attracting more interest from traders outside the U.S. Since the ban on exports ended, daily volume surged about 73 percent in European trading hours and 180 percent during the Asian day, according to CME data through 2017. The contracts are typically used by investors who are managing their financial risk and who don’t want to take delivery of physical oil, including through the United States Oil Fund, the largest ETF tracking crude prices, and funds tracking the Bloomberg Commodity Index.

“We’ve got WTI booming, we’ve got Midland booming,” said Owain Johnson, managing director for energy research and product development at CME Group Inc., the world’s largest futures exchange operator and Nymex’s owner. “There’s nothing really there that suggests anything needs to change or replace Cushing.”

–With assistance from Alex Longley

To contact the reporters on this story: Jessica Summers in New York at jsummers24@bloomberg.net, Sheela Tobben in New York at vtobben@bloomberg.net.

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Steve Stroth

 

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With Glut Almost Gone, OPEC Still Cuts More Than Oil Pact Demands

With Glut Almost Gone, OPEC Still Cuts More Than Oil Pact Demands

A global oil glut has been virtually eliminated, figures published by OPEC showed on Monday, thanks to an OPEC-led pact to cut supplies that has been in place since January 2017 and due to rising global demand.

Despite this, OPEC’s latest report said producers were cutting more than required under the deal, while producers not party to the agreement, such as U.S. shale companies, were starting to face constraints on future output.

Saudi Arabia, the world’s biggest oil exporter and de facto leader of the Organization of the Petroleum Exporting Countries, told OPEC it cut output in April to its lowest level since the supply deal began in January 2017.

The OPEC report said oil inventories in OECD industrialised nations in March fell to 9 million barrels above the five-year average, down from 340 million barrels above the average in January 2017.

“The oil market was underpinned in April by renewed geopolitical issues, tightening product inventories and robust global demand,” OPEC said in its report.

The deal between OPEC, Russia and other non-OPEC producers has helped oil prices rise 40 percent since it took effect. Oil reached $78.28 a barrel on Monday, the highest since November 2014, after the OPEC report was published.

The main goal of the supply deal was to reduce excess oil stocks to the five-year average. But oil ministers have since said other metrics should be considered such as oil industry investment, suggesting they are in no hurry to end supply cuts.

Indeed, the report showed OPEC for now is cutting more supply than the group has pledged under the pact.

OPEC output rose by just 12,000 barrels per day (bpd) to 31.93 million bpd in April, according to figures OPEC collects from secondary sources. That is roughly 800,000 bpd less than the amount OPEC says the world needs from the group this year.

Figures reported directly from OPEC members showed even deeper declines in production.

Venezuela, whose output has plunged due to an economic crisis, told OPEC its production fell to 1.505 million bpd in April, believed to be the lowest in decades.

Top exporter Saudi Arabia told OPEC it cut output by 39,000 bpd to 9.868 million bpd, which is the lowest since the supply cut deal began, based on figures Riyadh reports to the group.

Shale Constraints?

Strong growth in demand due to a robust world economy has helped remove the glut. OPEC slightly raised its estimate of growth in world demand this year to 1.65 million bpd.

The higher crude prices that have followed have prompted growth in rival supply and a flood of U.S. shale output. OPEC expects non-OPEC supply to expand by 1.72 million bpd this year, which is higher than the growth in global demand.

But OPEC forecast headwinds to future growth, such as the slow place of oil industry investment and an expected dip next year in investment in U.S. shale, also known as tight oil.

“Fast-growing U.S. tight oil production is increasingly faced with costly logistical constraints in terms of outtake capacity from land-locked production sites,” OPEC said.

Adding to the impact of OPEC-led cuts, the U.S. decision to withdraw from an international nuclear deal with OPEC member Iran and to renew sanctions has raised concerns about Iranian oil exports, helping drive prices higher.

OPEC signalled the group and its allies were ready to step in should “geopolitical developments” impact supply. Saudi Arabia said last week it was ready to offset any shortage but would not act alone.

“OPEC, as always, stands ready to support oil market stability, together with non-OPEC oil producing nations participating in the Declaration of Cooperation,” OPEC said, using its name for the pact on supply curbs.

(Editing by Jason Neely and Edmund Blair)

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OPEC In No Hurry To Decide If Extra Oil Needed To Offset Iran -Sources

OPEC is in no hurry to decide whether to pump more oil to make up for an expected drop in exports from Iran after the imposition of new U.S. sanctions, four sources familiar with the issue said, saying any loss in supply would take time.

The Organization of the Petroleum Exporting Countries has a deal with Russia and non-OPEC producers to cut supplies that has helped erase a global glut and boosted oil prices to their highest since 2014.

Officials are considering whether a drop in Iranian exports and a decline in supply from another OPEC member, Venezuela, demands adjusting the deal that runs to the end of 2018. Ministers meet in June to review the policy.

U.S. sanctions on Iran will have a six-month period during which buyers should “wind down” oil purchases, meaning any loss of supply will not be immediately felt in the market.

“I think we have 180 days before any supply impact,” an OPEC source said when asked about any plans for action.

A second OPEC source said that, while the need to add extra supply was being considered, the safest thing for the group to do for now was to sit tight and monitor the situation.

Oil reached $78 a barrel on Thursday, its highest since November 2014, two days after President Donald Trump said the United States was abandoning an international nuclear deal with Iran and would impose new sanctions.

Iran, which pumps about 4 percent of the world’s oil, exports about 450,000 barrels per day (bpd) to Europe and around 1.8 million bpd to Asia. Sales to Europe are seen by analysts as the more likely to be reduced by the sanctions.

“It’s too early to know now the impact,” said a third OPEC source. “We need to wait and see what China will do, what Japan will do. Who will buy Iranian oil and who will side with Trump.”

Jeddah Talks

As part of the supply deal, OPEC pledged to cut 1.2 million bpd from supplies from its members. In practice, the group has overshot this, partly because Venezuelan output has plunged due an economic crisis.

Oil ministers from OPEC and its partners meet on June 22-23 in Vienna to review the existing agreement.

Before that, technical officials meet in Jeddah, Saudi Arabia, on May 22-23 when the issue of whether extra barrels are needed to offset any Iranian loss will likely come up, the second source said.

A fourth OPEC source also said it was too soon to tell if extra oil was needed, citing Iran’s ability to keep much of its exports flowing under a previous round of sanctions. “Too early to judge,” he said.

On Wednesday, a separate OPEC source had said Saudi Arabia was monitoring the impact of the U.S. move on oil supplies and was ready to offset any shortage but would not act alone.

This source had also said the impact of U.S. sanctions on Iranian supplies needed to be assessed first and Saudi Arabia did not expect any physical impact on the market until the third or fourth quarters.

Analysts also expect Saudi Arabia to be cautious and step in only to offset an actual supply loss, not an anticipated one.

“Saudi will remain reactive and not pre-empt forward fundamentals. If a supply dislocation emerges and inventories get abnormally low, then OPEC and Russia may act,” said Yasser El Guindi, market strategist at Energy Aspects. “People are putting the cart before the horse.”

(Editing by Edmund Blair and Jason Neely)

 

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