Having flirted with the key psychological level of $50/bbl ever since the first week of October as a result of an ongoing short squeeze due to concerns that OPEC just may pull of the production cut it agreed on in Algiers in late September, moments ago the active WTI contract dipped below $50 without any notable news.
Furthermore, as Reuters’ Amanda Cooper points out, the 1M/2M contango has now blown out to the widest level in almost a year.
As there was no immediate catalyst for the drop, traders attributed to slide to a delayed reaction from this weekend’s news that Iraq may have effectively split from the Algiers agreement, by demanding that it too should be granted the same oil production cut exemption rights as were granted to Iran, Libya and Nigeria. As a reminder, and as we reported yesterday, Iraq’s Oil Minister Jabber Al-Luaibi said Sunday at a news conference in Baghdad that his country should be exempted from output restrictions as it was fighting a war with Islamic State. “We are fighting a vicious war against IS,” Luaibi said in e briefing for reporters, adding that Iraq should get the same exemption as Nigeria and Libya.
“We are with OPEC policy and OPEC unity,” Al-Luaibi said. “But this should not be at our expense.” Instead, it is looking like a cut, if any, will be entirely at the expense of Saudi production, which may be forced to cut 1mmbpd or more, should OPEC continue to see rising record monthly production.
Cited by Reuters, Falah al-Amiri, head of Iraq state oil marketer SOMO, said Iraq’s market share was compromised by the various wars it fought since the eighties.
Even more fascinating was Iraq’s stated expectations of what its true output should be: a whopping 9 million barrels per day, roughly double from where it is now! “We should be producing 9 million if it wasn’t for the wars.” He added that Iraq has “passed 4.7 million barrels a day” and made it quite clear that Iraq would certainly not cut production: “We are not going back. It’s a question of sovereignty.”
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Earlier today, Bloomberg confirmed the mounting skepticism that an OPEC deal would be problematic at best, when it cited Michael Lynch of SEER who siad that “we’ve had a big run-up in anticipation of OPEC cuts, but nothing has happened yet. There are a lot of negotiations ahead.”
But it all goes back to Iraq, which we warned readers would be a major hurdle from the start: “Iraq’s request to be exempted from a deal to cut output has further clouded the prospect of OPEC strategy to stabilize the oil market succeeding,” said Jens Naervig Pedersen, a Copenhagen-based analyst at Danske Bank A/S. “At the same time, the oil-rig count indicates that U.S. shale producers are slowly returning, making OPEC’s life even more difficult.”
Meanwhile, Russia is still in talks with OPEC about production and “many scenarios” are being discussed, Energy Minister Alexander Novak said after meeting his Gulf Arab counterparts in Riyadh. However, attention is shifting to the Op-ed posted by Rosneft CEO Igor Sechin which implied that Russia would most likely not comply with a production freeze, and would certainly avoid a production cut.
Finally, courtesy of Bloomberg, here is a roundup of the main oil-related news from this morning:
- Iran hopes Russia will cooperate with OPEC, Iranian Oil Minister Bijan Namdar Zanganeh said in Tehran.
- Iran will “go along” with OPEC’s goal of balancing the market, state news agency IRNA reported, citing Deputy Oil Minister Amir Hossein Zamaninia, who expects a “fair” oil price of $55 to $60 by 2017.
- Libyan oil output will rise to 600,000 barrels a day “soon” and may reach 900,000 barrels if the El Sharara and El Feel fields reopen, Prime Minister Fayez al-Sarraj said on state television.
- China’s imports of crude from Russia fell to 3.96 million tons in September, 2.1 percent lower than a year earlier, according to data from the General Administration of Customs.
But while crude may have reached its interim peak for the current cycle, Saudi Arabia is content, having achieved its goal: it issued a record for an EM $17.5 billion bond issue, and is far less concerned what happens with the price of oil in the near term.
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