OPEC Production Cut: Saudi Arabia’s Big Gamble

2 Comments on "OPEC Production Cut: Saudi Arabia’s Big Gamble"

rockman on Sat, 1st Oct 2016 3:22 pm 



So when is pledging to reduce production actually not a true reduction in volume and possibly an increase? When the KSA increases sales by lowering prices prior to pledging to reduce production. Especially when an annually reoccurring period of reduced consumption is just ahead.

And a bit of recent history: just last Feb the KSA was producing 9.99 mm bopd and Brent was selling for about $38/bbl. And now with prices around $46/bbl the KSA is producing 10.49 mm bopd and offering to cut its production 0.5 mm bopd. IOW to about the same production level is was doing 6 months ago. Which is 0.2 mm bopd MORE then it was producing in Jan 2015 when Brent was selling for the same price they are getting today. It sounds a tad like raising the price on a pair of shoes 20% and the putting them on sale a few months later for 20% off. LOL.

Reuters – “Arabia usually pumps more crude oil during the summer months to meet a seasonal increase from domestic power companies trying to satisfy air-conditioning demand. But the kingdom’s oil production is under intense scrutiny after it promised its Opec peers in June that it would not flood the market with its oil. Rival Opec countries will be watching closely to see if it pulls back production once temperatures cool as it did last year, lowering output to about 10.2m b/d between September and May.

Saudi Arabia’s state oil company last June cut export prices for Asian customers by the most in a year, signalling a more aggressive push for customers as it competes with big producers like Russia and Iraq and its regional rival Iran, where exports are rising after the end of years of sanctions. Demand is also expected to weaken in Asia in October as the refinery maintenance season gets under way.”

And now with the Kashagan Fld expecting to come on at 350,000 bopd and Russia’s second largest company announcing it will bump up production 200,000 bopd it sounds like goal of the freeze proposal isn’t so much to force prices up but to keep them from dropping. Such expectations might explain why those willing to increase future oil contracts 5.3% in just one day had no trouble finding buyers willing to bet the same amount they were wrong.

rjk on Mon, 3rd Oct 2016 2:22 am 



Rockman
The assumptions you are making above may not be correct. How can you believe any data out of KSA. Here they admit they are using inventoryhttp://www.bloomberg.com/news/articles/2016-06-23/oil-glut-is-fading-where-you-would-least-expect-saudi-arabia
Further the shutdown of the Neutral zone never appeared in KSA or Kuwait productionhttp://english.alarabiya.net/en/business/energy/2015/05/11/Saudi-Kuwait-to-shut-neutral-zone-oilfield-Official.html