Welcome to the what to expect edition of Oil Markets Daily!
On July 24, OPEC and Non-OPEC are back in the media spotlight with their Joint Ministerial Monitoring Committee meeting in Russia.
Since the deal extension announced in May, this event has gathered steam in recent weeks as Nigeria and Libya production have been on the rebound, while Ecuador recently told the producers that it can no longer fulfill the production cut requirement due to economic situations.
Here's what readers should expect for this meeting!
- Nigeria and Libya, will their production be capped with a quota similar to Iran's?
Over the last week, sellside analysts have chimed in with their forecasts for this meeting. The current bar is set very low as most don't expect these two OPEC members to agree to any production cap.
Nigeria is still experiencing sabotage as Shell's recent announcement of force majeure of Bonny Light grade illustrates the stability of the region.
Libya, while on a luck streak as of late, is currently producing above 1 million b/d (according to government sources), but it's luck can also run out fairly quickly if fighting resumes.
Both countries, as consensus currently expects, will not participate in any production cap until production and geopolitical risks stabilize.
- Will Saudi cut production further to make room for Nigeria and Libya?
There were chatters earlier in the week that Saudi could look to decrease exports by an additional 900k b/d.
Media also reported that Saudi was experiencing technical difficulties with one of its offshore fields, Manifa, that currently produces 900k b/d.
People started speculating whether the 900k b/d export cut could just be related to the technical difficulties that some experts think will take more than 1-year to fix.
Given Saudi's spare capacity, the field outage isn't likely to impact its export or production volumes to that magnitude. However, this goes back to illustrate our point that we discussed in our interview with Seeking Alpha, that this OPEC production cut isn't really a cut. It was done in disguise as OPEC members were producing at capacity and could no longer keep the production volumes up.
Nonetheless, the consensus does not expect Saudi to announce a bigger production cut to compensate for the return of Nigeria and Libya. This is one aspect of the meeting surprise that is NOT priced in.
Bottom-line: Understanding what the consensus is projecting going into this meeting gives us clarity on what's priced in and what's not. Clearly, consensus does not expect this meeting to provide any meaningful surprises to the upside or the downside. If Saudi announces that it will cut production further to compensate for Nigeria and Libya, the market will react very strongly as the Saudi's demonstrate the willingness to follow through on "whatever it takes." If there are no surprise announcements, then we don't expect a sell-off either as this is the current forecast from the consensus.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.