We are nearing the end of the current oil trading year's third quarter and crude prices, while volatile, continue to oscillate within a predictable $50-70 per barrel range, with both the global proxy benchmark Brent, as well as the U.S. benchmark the West Texas Intermediate, finding, testing but ultimately failing to breach the floor and ceiling of the stated range.
It has meant that oil cartel OPEC's basket of crude oils – the benchmarking average of sale prices quoted by its 14 members which conventionally hovers in between Brent and WTI front-month prices – has averaged just shy of $65 per barrel this year (see chart below).
That's a price level the cartel is working overtime to hold with the overhang of a possible global economic slowdown, U.S.-China trade tiffs, Brexit and all the rest of it.
Even if desperate members such as Venezuela might want a higher oil price, anecdotal and empirical evidence suggests spending and final investment decisions (FIDs) on projects within OPEC's ranks is reasonably healthy, especially among its Middle Eastern members like the United Arab Emirates, and Saudi Arabia which is eyeing – and keeps eyeing – a public float of its state-owned behemoth Saudi Aramco.
Underpinning much of it, and to an extent the price range crude futures have oscillated in 2019, is OPEC's output cut of 1.2 million barrels per day (bpd) extended in July till March 2020, in concert with 10 Russian-led non-OPEC members; an alliance the cartel has worked hard to preserve.
So where from here? And wouldn't OPEC be tempted to raise production at some point given its market share is now below a third of the global market. The latest Reuters survey points to just that, noting that OPEC has pumped 29.61 million bpd in August, up 80,000 bpd from July's revised figure which was its lowest production level since 2014.
The biggest supply boost of 80,000 bpd came from Nigeria which has continued to produce above its quota, while the the second-largest rise of 60,000 bpd came from Iraq. Smaller increases came from Libya, where the country's largest oilfield, El Sharara, resumed output on or around August 8 following an outage, Reuters said.
However, OPEC flag bearer Saudi Arabia continued to show restraint with production pegged at 9.63 million bpd. That's is well below its quota of 10.311 bpd. Saudi efforts have largely ensured OPEC achieved 136% of pledged cuts 1.2 million bpd cuts, down from 150% in July.
Overall, OPEC's headline increase is gradual and nowhere near the level U.S. President Donald Trump has demanded and the Saudis have sidestepped. Over the coming months theirs, and by default OPEC's, resolve would be severely tested, not on account of pressure from 'The Donald', but also down to production cuts compliance being well above 100% and a commercial need to monetize relatively higher ~$60-plus per barrel prices.
Conventional logic suggests that would put downward pressure on the price and 2020 could get ugly for market bulls. But for now ~$65 per barrel seems just about okay, and OPEC is working overtime to ensure that level is maintained.
Date: Aug 31, 2019