Crude awakening: Russia-Saudi gameplan makes both winners ahead of World Cup
The Russia-Saudi clash was won before it even started.
The two countries are scheduled to meet today ahead of their World Cup match to talk ahead of a sensitive OPEC meeting this month.
Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman are planning to meet Thursday to possibly hash out reported differences over how much oil to return to the market and pre-empt the fate of their production deal at the June 22 OPEC meeting which could decide the direction of oil prices.
“They’re the deciders, at the end of the day,” Helima Croft, head of global commodities strategy at RBC, told CNBC.
“They can’t force the rest of OPEC to sign off, but they can go their own way. It can be just a table for two,” she said.
What’s on the table?
Trump at the pump
Brent crude futures were at $76.46 per barrel, down 28 cents, or 0.4% from their last close.
“The OPEC meeting on June 22 promises to be contentious, since Iran, Iraq, and Venezuela do not want to end the 18-month-old deal (ending in December 2018) to withhold 1.8 million barrels a day,” said CNBC.
US sanctions on Iran oil production is an opportunity for OPEC and Russia to return crude to the market in the face of rising production from the US.
“Iran asked to have a discussion about the sanctions included on the OPEC agenda, but it was denied,” Reuters reported.
CNBC said that it appears the Saudis, Kuwait, and the UAE are aiming for a 500,000-barrel-a-day deal now and maybe 500,000 at a date when they look at the market again, maybe September.
Sadad Ibrahim Al Husseini, a former executive vice president of Saudi Aramco, said Russian and Saudi Arabian leaders “will look at gradual but steady increases of overall supply, easily between one and 1.2 million barrels a day by year-end.”
“The Russian oil companies, increasingly active in Venezuela and the Middle East, have recently raised their production capacity. They also prefer lower prices because they pay higher marginal corporate tax rates when prices go above $75 a barrel,” added the New York Times.
Saudi and Russian officials expressed their preference for higher production levels after President Donald Trump jabbed OPEC for oil prices saying in a tweet that they are too high.
Trump tweeted: “Oil prices are artificially Very High! No good and will not be accepted!”
West Texas Intermediate (WTI) crude was trading just above $66.6 per barrel Wednesday, $6 less than its recent $72 per barrel high.
U.S. oil production hit a weekly record of 10.9 million barrels per day (bpd) last week, according to the Energy Information Administration (EIA) on Wednesday, above that of top exporter Saudi Arabia, which currently produces 10 million bpd.
U.S. crude output has risen by almost 30% percent in the last two years, and it is now close to top global producer Russia, which produced 11.1 million bpd overall in the first two weeks of June.
U.S. crude inventories fell by 4.1 million barrels in the week to June 8, to 432.4 million barrels due to high demand.
Oilprice.com, an industry site, said US shale will continue its breakneck growth rate into 2019, despite bottlenecks, but the oil market still faces serious supply risks from the potential losses from Venezuela and Iran, quoting the IEA in a new report.
Looking ahead to 2019, the IEA thinks that oil demand growth will expand by yet another 1.4 million bpd.
The IEA sees non-OPEC supply growing by 2 million bpd in 2018, followed by another jump of 1.7 million bpd in 2019.
The IEA said it is conceivable that the two beleaguered OPEC members, Iran and Venezuela could lose 1.5 million bpd of supply combined by the end of 2019.