The fuse opec+ faces oversupply, pressure from washington heading into meeting next week – the fuse s gashi


The OPEC+ meeting in Vienna is quickly approaching, and there is rich speculation over the likelihood the group will cut production in order to halt the slide in oil prices. If it occurs, the production cut would be a dramatic about-face compared to six months ago, when Saudi Arabia and Russia signaled their intention to lift output to ensure the oil market did not overly tighten.

A combination of factors have surprised OPEC+, including higher production levels from within the cartel. But surging U.S. shale production and a weaker global economy have also contributed to a renewed supply surplus. year 6 electricity assessment OPEC+ is now moving quickly to try head off a growing supply glut, although on the eve of the meeting in Vienna, it is still unclear how far they will go.

Brent crude oil prices hit a four-year high in October at $86 per barrel. At that point, U.S. sanctions had already eliminated more than 1 million barrels per day (Mbd) of oil exports from Iran, and sanctions were set to take effect in November, promising to further cut into Iranian supply. The global crude oil inventory surplus had previously been eliminated, and although stocks had stopped declining several months prior, the prospect of Iranian outages seemed to point towards a market deficit. Meanwhile, in the U.S., the shale industry appeared to be bedeviled by pipeline bottlenecks, slowing a production boom.

However, over the course of the last several weeks, many of those factors have been turned on their head. OPEC+ proved that it could meet a supply gap by ramping up production. Saudi Arabia produced 10.630 Mbd in October, a greater-than 600,000 barrel-per-day (b/d) increase over May levels. Production has reportedly jumped as high as 11.2 Mbd this month. c gastritis The UAE has also added nearly 300,000 b/d since May. Russia, Iraq and a few other countries have added meaningful supplies, while Libya unexpectedly restored a significant portion of output that had been sidelined for years.

At the same time that OPEC+ increased production, U.S. shale was quietly breaking new records. Pipeline bottlenecks in the Permian basin have led to painful discounts for oil based in Midland, Texas, but growth continues apace. Output has also been rising in the Bakken, the Eagle Ford and in several other shale plays. The offshore Gulf of Mexico reached a new record output in August at 1.918 Mbd, up more than 400,000 b/d from May levels. In fact, when the EIA released data for August, it revealed a massive increase in U.S. oil production. q gastrobar dias ferreira The U.S. produced 11.346 Mbd, an increase of 400,000 b/d from July, and up an astounding 2.1 Mbd from the same month a year earlier. Those figures took the steam out of the oil market and proved that the widely-cited pipeline bottleneck was not slowing the shale industry down.

The global economy has also displayed some weakness in recent weeks. GDP contracted in Japan and Germany in the third quarter, and consumer spending in China is also slowing down. The trade war and volatility in global financial markets have also raised questions about the health of the economy. High oil prices combined with weaker currencies in emerging markets have put a crimp on oil demand. Major oil market forecasters, such as the IEA and OPEC, have repeatedly revised down demand estimates.

The final nail in coffin for oil prices over the last few weeks was the Trump administration’s decision to issue waivers to eight countries importing oil from Iran. electricity and circuits physics After spending the last six months promising to take Iran’s oil exports down to zero, the leniency upended most market forecasts. OPEC+ had been ramping up supply in anticipation of a greater disruption. The combined production increases from OPEC+ and the United States, and the lower-than-expected outages from Iran all combined to create a renewed surplus.

The sudden re-emergence of a supply glut now puts OPEC+ back on the spot. “OPEC is currently producing roughly 1.7 million barrels per day more than will be needed on average in 2019,” Commerzbank said in a note in mid-November. “The fact that US crude oil stocks are still rising sharply shows that the oil market is already oversupplied.” The IEA said in its November Oil Market Report that global inventories could rise at an average rate of 0.7 Mbd in the fourth quarter, a sizable surplus. Ongoing gains from non-OPEC countries could result in that surplus ballooning to 2 Mbd in the first half of 2019, absent OPEC+ action.

Reuters reports that Saudi Arabia and its OPEC allies were surprised by how generous the U.S. was towards buyers of Iranian oil. U.S. sanctions on Iran went into effect in early November, but the waivers will translate into much lower-than-expected supply disruptions from Iran. Feeling burned by the Trump administration, sources told Reuters that Saudi Arabia is now more determined to engineer a supply cut at the upcoming OPEC meeting in Vienna.

Talk of returning to a production cut began to surface a few weeks ago but reached a fever pitch in the lead up to the OPEC-Non-OPEC Joint Ministerial Monitoring Committee (JMMC) meeting in Abu Dhabi on November 11. electricity flow direction After the summit, Saudi oil minister Khalid al-Falih told reporters that Saudi Arabia would slash oil exports by 500,000 b/d in December in order to head off a supply glut. A few days later, after oil prices crashed to new lows, reports surfaced suggested that OPEC+ might consider a cut as large as 1.4 Mbd next month in Vienna.

A growing number of analysts are baking in some sort of production cut into their forecasts. “Libyan, Iraqi, and Venezuelan output are surprising to the upside and the economic outlook has worsened.” Barclays said in a note earlier this month. “[F]urther weakness is likely in store, which is likely to compel an OPEC+ reaction to keep some form of its cuts in place.”

However, there is still uncertainty. Russian officials have been more circumspect regarding a production cut. Also, Saudi Arabia is under pressure from the U.S. government not to push up prices. The international fallout from the murder of Saudi journalist Jamal Khashoggi has made Riyadh more concerned about the reaction from Washington, so Saudi Arabia may not push for the most aggressive production cut option in Vienna.

Recent OPEC meetings have not been free of acrimony, especially the June 2018 meeting that resulted in a production increase. electricity 1 unit how many watts Engineering a collective production cut could be tricky, but the recent good fortune in several OPEC member countries provides some leeway for an agreement. “Given the rapid ramp up in output from Iraq, Libya, UAE, Saudi Arabia, and Russia, these countries will have significant ability to equally share in the cuts for the collective good of all,” Barclays wrote.

• The spate of crude-by-rail accidents has emerged from the confluence of three factors. First is the massive increase in oil movements by rail, which has increased more than three-fold since 2010. Second is the inadequate safety features of DOT-111 cars, particularly those constructed prior to 2011, which account for roughly 70 percent of tank cars on U.S. railroads. Third is the high volatility of oil produced from the Bakken and other shale formations, which makes this crude more prone towards combustion.

• Of these three, rail car safety standards is the factor over which regulators can exert the most control. After months of regulatory review, on May 1, 2015, the White House and the Department of Transportation unveiled the new safety standards. The announcement also coincided with new tank car standards in Canada—a critical move, since many crude by rail shipments cross the U.S.-Canadian border. In the words DOT, the new rule:

• The current industry standard car, the CPC-1232, came into usage in October 2011. These cars have half inch thick shells (marginally thicker than the DOT-111 7/16 inch shells) and advanced valves that are more resilient in the event of an accident. gas vs diesel engine However, these newer cars were involved in the derailments and explosions in Virginia and West Virginia within the past year, raising questions about the validity of replacing only the DOT-111s manufactured before 2011.

• Before the rule was finalized, early reports indicated that the rule submitted to the White House by the Department of Transportation has proposed a two-stage phase-out of the current fleet of railcars, focusing first on the pre-2011 cars, then the current standard CPC-1232 cars. In the final rule, DOT mandated a more aggressive timeline for retrofitting the CPC-1232 cars, imposing a deadline of April 1, 2020 for non-jacketed cars.