All Topic 2 Resources
Hello Delegates,
Attached are a few resources that should help you gain a better understanding of the topic. Each article gives different but important insight into how OPEC works as well as how it impacts other nations.
OPEC And The Aftermath of Hurricane Harvey Could Drive Energy Prices Higher
Attached are a few resources that should help you gain a better understanding of the topic. Each article gives different but important insight into how OPEC works as well as how it impacts other nations.
For decades, OPEC's sway on oil prices was unparalleled.
But the cartel's immense influence has been dealt a huge blow by the dramatic boom in US shale.
"Saudi Arabia and OPEC are no longer in control," Douglas Rachlin, managing director at Neuberger Berman's Rachlin Group, said on Wednesday at the SALT Conference in Las Vegas.
The emergence of US shale as a key global player that can pump even during low oil prices means OPEC can no longer "manipulate prices," Rachlin said. "The shale revolution has changed a lot of things."
In a display of how much the pendulum has swung, OPEC sent a plea to the US earlier this month to stop pumping so much oil. The plea came after a flood of supply from US shale producers, especially in the Permian Basin of Texas and New Mexico, threw a wrench in OPEC's ability to stabilize oil prices.
"The reality is that the US is now...the swing producer," Michael Hintze, the billionaire founder of hedge fund CQS, said at SALT.
Hintze pointed to the prolific production out of the Permian Basin, which benefits from unique geology that allows multiple layers of rock to be fracked at the same time. The Permian has also capitalized on technological advances that makes it cheaper to drill for oil.
In recent days, OPEC has sought to calm nervous investors. Saudi Arabia and Russia sent oil prices rising after pledging to do "whatever it takes" to support markets, including an extension of production cuts until March 2018.
Still, Hintze said Saudi Arabia "cannot be the swing producer any longer because of its fiscal situation." The country has sought to break its dependence on the oil industry by launching Vision 2030, an ambitious program to reduce the country's dependence on oil and diversify its economy.
"Hopefully by 2030, I wouldn't care if the oil price is zero," Saudi finance minister Mohammed Al Jadaan told CNNMoney's John Defterios this week.
"The reality is who is left and who can push the global production curve around? It's the US," said Hintze.
Another factor that the oil industry has going for it is President Trump.
"The administration has been incredibly supportive," Rachlin said, pointing to former ExxonMobil CEO Rex Tillerson becoming secretary of state and former Texas governor Rick Perry becoming energy secretary.
"We have friends in high places today. I feel really good," Rachlin said.
"If this administration doesn't turn out too well, we may be facing Elizabeth Warren, and then I think there'll be a lot of problems for a lot of people," he said.
OPEC And The Aftermath of Hurricane Harvey Could Drive Energy Prices Higher
Energy prices have been battered for some time now. However, we could start to see a bounce in crude oil and gas prices due to the potential fall in supply, coupled with increased demand due to OPEC’s production cutsand Hurricanes Harvey and Irma. We’ve seen crude oil prices hovering below the $50, but this could change quite soon.
Moreover, natural gas prices have been trading above $3 due to the increased demand and fall in supply after Hurricane Harvey hampered refineries and pipelines in Texas and Louisiana.
With crude oil and natural gas prices setting up for a potential rebound, there are some trading opportunities that have been uncovered, and some market participants might want to look to take advantage of some energy-related exchange-traded funds that have been pummeled.
Rainwater from Hurricane Harvey surrounds oil refinery storage tanks in this aerial photograph taken above Texas City, Texas, U.S., on Wednesday, Aug. 30, 2017. Unprecedented flooding from the Category 4 storm that slammed into the state's coast last week, sending gasoline prices surging as oil refineries shut. Photographer: Luke Sharrett/Bloomberg
OPEC Looks to Extend Production Cuts
Now, the Organization of the Petroleum Exporting Countries (OPEC) is looking to extend its production cuts to the second half of 2018, in an attempt to boost crude oil prices. An extended production cut of three months might not seem long to many, but this is what OPEC and its allies believe it needs to do under the worst-case scenario. There have also been rumors that OPEC and its allies might even look to extend production cuts for an additional six months.
Although OPEC is set to meet at its ministerial meeting in late November, in Vienna, it may look to discuss a potential extension in a meeting prior to that. It’s still unknown how long OPEC will look to extend production cuts, but this depends on a multitude of factors, such as the supply of U.S. shale and global demand for crude oil.
In OPEC’s recent September report, it showed that oil production fell last month. Additionally, it highlighted that demand for oil could see a rise in 2018. However, the Organization of the Petroleum Exporting Countries might not be able to reverse production cuts on, if it wants to maintain a well-balanced level of supply and demand.
Here is a recent press release from OPEC to help orient your thinking, as well as a short video that is a great help to understanding the topic.
MMC expresses confidence that the oil market is steadily progressing towards rebalancing No
3/2/2017
St. Petersburg, Russia
24 Jul 2017
The Joint OPEC-Non-OPEC Ministerial Monitoring Committee (JMMC) met in St. Petersburg for its fourth meeting on 24 July 2017 to review the June 2017 report as well as the first six months of the Declaration of Cooperation, as submitted by the Joint OPEC-Non-OPEC Technical Committee (JTC). This meeting was graciously hosted by the Russian Federation, and the Committee expressed its deep appreciation to HE Alexander Novak, Minister of Energy, for the warm hospitality and excellent arrangements extended to all delegations.
The Committee reviewed the JTC report and noted that the oil market is making steady and significant progress towards rebalancing. This assertion is based on the Report of the JTC for the month of June 2017, which reviewed market developments and the results of the first six months of progress made according to OPEC’s 171st Ministerial Conference Decision and the respective voluntary adjustments in line with the Declaration of Cooperation.
The continued strengthening of the global recovery is underway, with stability in the oil market remaining a key determinant. The market volatility has been lower in recent weeks and investment flows have visibly started to improve in the industry.
According to the JTC report, there are several positive indicators going forward. Oil demand is expected to increase significantly in the 2H17 compared to 1H17, with the growth reaching a level of 2 mb/d, which should sustain the inventory draws. Furthermore, the participating OPEC and Non-OPEC producing countries achieved a conformity level of 98% in June 2017. In addition, same level of high conformity was observed for the first six months of January to June 2017. Between January and June 2017, the participating producing countries adjusted their production downwards by an estimated volume of 351 mb. Also, the overhang of OECD commercial oil stocks over the 5-year average level has fallen by 90 mb for the period from January to June 2017 and now stand at 250 mb. The JMMC noted that despite the high level of conformity at the aggregate level, there is still room for improvement by some participating producing countries, and demanded that all participating producing countries must promptly reach full conformity. Consequently, the JMMC had serious discussions with those countries and will continue to engage with all participating countries individually, in particular those that are yet to achieve 100% conformity for the remaining period of the Declaration of Cooperation.
Given the importance of other monitoring metrics in the oil market, and their implications for the market, the JTC should expand monitoring and reporting to include such metrics.
The JMMC further noted that existing oil market trends are resulting in moderation of future supply growth with the number of new FIDs significantly below historic averages. Shale oil projects which have been the source of sizable share of oil supply growth in past three years are going through a period of slowing well productivity, accelerating cost inflation, deceleration of rig count growth and constrained capital market access.
The JMMC, having reviewed the report of the JTC, including the presentations made by the representatives of Libya and Nigeria on their production recovery plans, prospects, and challenges, acknowledges the upside limitations of both countries beyond their current production levels. Once their production levels stabilize, participating producing countries should further cooperate in a manner that contributes to the stabilization of the market. The JMMC will continue to monitor and recommend further actions including the holding of an extraordinary conference of the 24 producing countries if needed.
The JMMC further welcomed the flexibility of Nigeria in this regard, which despite its commitment to recover its pre-crisis production level, voluntarily agreed to implement similar OPEC production adjustments as soon as its recovery reaches a sustainable production volume of 1.8 mb/d.
The JMMC also recommended keeping the extension of the Declaration of Cooperation beyond 1Q18 as an option should further action be required for the stabilization of the market.
The 5th Meeting of the JMMC is scheduled to take place in September 2017, or earlier if deem necessary.
St. Petersburg, Russia
24 Jul 2017
The Joint OPEC-Non-OPEC Ministerial Monitoring Committee (JMMC) met in St. Petersburg for its fourth meeting on 24 July 2017 to review the June 2017 report as well as the first six months of the Declaration of Cooperation, as submitted by the Joint OPEC-Non-OPEC Technical Committee (JTC). This meeting was graciously hosted by the Russian Federation, and the Committee expressed its deep appreciation to HE Alexander Novak, Minister of Energy, for the warm hospitality and excellent arrangements extended to all delegations.
The Committee reviewed the JTC report and noted that the oil market is making steady and significant progress towards rebalancing. This assertion is based on the Report of the JTC for the month of June 2017, which reviewed market developments and the results of the first six months of progress made according to OPEC’s 171st Ministerial Conference Decision and the respective voluntary adjustments in line with the Declaration of Cooperation.
The continued strengthening of the global recovery is underway, with stability in the oil market remaining a key determinant. The market volatility has been lower in recent weeks and investment flows have visibly started to improve in the industry.
According to the JTC report, there are several positive indicators going forward. Oil demand is expected to increase significantly in the 2H17 compared to 1H17, with the growth reaching a level of 2 mb/d, which should sustain the inventory draws. Furthermore, the participating OPEC and Non-OPEC producing countries achieved a conformity level of 98% in June 2017. In addition, same level of high conformity was observed for the first six months of January to June 2017. Between January and June 2017, the participating producing countries adjusted their production downwards by an estimated volume of 351 mb. Also, the overhang of OECD commercial oil stocks over the 5-year average level has fallen by 90 mb for the period from January to June 2017 and now stand at 250 mb. The JMMC noted that despite the high level of conformity at the aggregate level, there is still room for improvement by some participating producing countries, and demanded that all participating producing countries must promptly reach full conformity. Consequently, the JMMC had serious discussions with those countries and will continue to engage with all participating countries individually, in particular those that are yet to achieve 100% conformity for the remaining period of the Declaration of Cooperation.
Given the importance of other monitoring metrics in the oil market, and their implications for the market, the JTC should expand monitoring and reporting to include such metrics.
The JMMC further noted that existing oil market trends are resulting in moderation of future supply growth with the number of new FIDs significantly below historic averages. Shale oil projects which have been the source of sizable share of oil supply growth in past three years are going through a period of slowing well productivity, accelerating cost inflation, deceleration of rig count growth and constrained capital market access.
The JMMC, having reviewed the report of the JTC, including the presentations made by the representatives of Libya and Nigeria on their production recovery plans, prospects, and challenges, acknowledges the upside limitations of both countries beyond their current production levels. Once their production levels stabilize, participating producing countries should further cooperate in a manner that contributes to the stabilization of the market. The JMMC will continue to monitor and recommend further actions including the holding of an extraordinary conference of the 24 producing countries if needed.
The JMMC further welcomed the flexibility of Nigeria in this regard, which despite its commitment to recover its pre-crisis production level, voluntarily agreed to implement similar OPEC production adjustments as soon as its recovery reaches a sustainable production volume of 1.8 mb/d.
The JMMC also recommended keeping the extension of the Declaration of Cooperation beyond 1Q18 as an option should further action be required for the stabilization of the market.
The 5th Meeting of the JMMC is scheduled to take place in September 2017, or earlier if deem necessary.
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