Complex Made Simple

First NOPEC, now India and China going after OPEC

First NOPEC, now India and China going after OPEC

OPEC is under attack for its hegemony over oil prices from two completely different regions.

Are we seeing the end of days for the oil cartel?

Do prices tell the story?

Balancing act

Oil prices dropped sharply end of last week following US President Donald Trump telling reporters on Friday that he had called OPEC and told the cartel to lower crude prices. Long positions were abandoned almost immediately.

Brent crude futures were at $71.75 per barrel down 29 cents, or 0.4% from last close on Tuesday, while West Texas Intermediate (WTI) crude futures were at $63.35, down 15 cents, or 0.2% respectively.

But according to OilPrice.com, Saudi energy minister Khalid al-Falih told the Financial Times that Saudi would not boost production immediately, adding that “the market is ‘well supplied’ and inventories continue to rise despite the sanctions against Iran’s oil exports.”

“There’s roughly a million barrels per day (bpd) of Iranian crude (exports) left, and there is plenty of supply in the market to ease that transition and maintain stable prices,” said Brian Hook, U.S. Special Representative for Iran and Senior Policy Advisor to the Secretary of State, speaking in a call with reporters.

Findings from a recent model that OilPrice undertook based on previous 19 oil disruptions indicate that the current disruption involving mostly Iran and Venezuela sanctions will likely cause prices to increase 66% bringing Brent to between $114 and $126 per barrel.

Oil prices surged by around 40% from January to April, led by supply cuts from OPEC as well as US sanctions on producers Iran and Venezuela.

Resistance to OPEC

India and China are challenging OPEC’s oil dominance , according to the Economic Times (ET).

“The two Asian powerhouses and world's second and third largest importers of oil have neared a momentous deal to set up a buyers' bloc that could dramatically tilt bargaining power in favour of importers,” ET states.

The upcoming buyers' bloc will bargain collectively on oil supplies and could significantly erode OPEC's sway on oil production and prices.

India currently imports over 805 of its oil needs and faces risks from severe price fluctuations, such as those that point up, especially as waivers to import from Iran end on May 2, 2019.

BNP Paribas said it expected oil prices “to rise in the near-term” in the face of unplanned supply outages and resilient oil demand. By Q4, prices will face downward pressures as U.S. exports of light crude rise following pipeline and terminal capacity expansion, according to CNBC.

U.S. exports exceeded 3 million barrels per day (bpd) for the first time in early 2019 pumping a record 12 million bpd.

Meanwhile, Reuters reported that Saudi is threatening to sell its oil in currencies other than the dollar if Washington passes a bill exposing OPEC members to U.S. antitrust lawsuits, aka NOPEC.

The No Oil Producing and Exporting Cartels Act, was first introduced in 2000 and aims to remove sovereign immunity from U.S. antitrust law, paving the way for OPEC states to be sued for curbing output in a bid to raise oil prices.

The US, Saudi and Russia control nearly 30% of oil production and Saudi’s Aramco holds is the world’s biggest oil exporter with sales of $356 billion in 2018, according to Reuters.

At the current price of $72 per barrel, the annual value of global oil output is $2.57 trillion or or near 3% of global GDP.