Oil is up tonight (WTI ~$0,90 and Brent ~$1.10) following Saudi’s not so veiled threat this morning to potentially use oil as a weapon. We are also writing ahead of the 60 Minutes playing of its full interview with Trump. However, that was recorded yesterday (before today’s Saudi warning) so we don’t expect the interview to have any major shifts in emphasis from the publicly disclosed portion yesterday for potential “severe punishment” if Saudi Arabia is at guilty in the Khashoggi mystery. Unless the US, Canada and others retreat on the Khashoggi mystery, we expect that oil is likely higher with the Saudi threat. Global oil supply is tight with the Iran/Venezuela oil declines and any Saudi retreating of its current 10.7 mmb/d will cause oil to go higher. Perhaps most importantly, we see added risk as today’s Saudi statement seemed to point to a change in the Saudi policy on oil exports. Today, Saudi Arabia includes in others attempt to undermine it threatening sanctions, but also “using political pressures, or repeating false accusations”. This appears to be a broadening of the risk of impacting oil exports from the recent Saudi Press Agency report “that said “Khalid Al-Falih, reaffirmed that the petroleum policy of the Kingdom of Saudi Arabia emphasizes that the Kingdom’s petroleum supplies to countries around the world are not to be impacted by political considerations. He reiterated that this is a firm and longstanding policy that is not influenced by political circumstances”. We believe this broadening of the Saudi position should put more of a risk premium in oil than what is being seen so far tonight, that is unless there is a retreat in criticism of Saudi Arabia. Today’s statement suggests a broadening of what would cause Saudi to cut off oil exports.
Its been a good month for oil prices that has been driven by the indications that US sanctions will hit Iran’s exports more than expected. It is why we posted our Sept 28 blog “Both China And India May Be Giving In And Reducing Iran Oil Imports, A Big Plus To Oil Prices”. WTI ~$75 and Brent ~$85 are strong oil prices. We continue to be bullish on oil prices and expect continued strength, but this week’s multiple positive oil supply items point to a holding of oil prices near current levels. There were several positive global oil supply indications (from Saudi Arabia, Russia, Angola, Libya, Nigeria, and US) that point to OPEC/non-OPEC now covering ~1.926 mmb/d of potential Iran cuts and Venezuela declines. This is a big increase from a week ago. Adding ~1.926 mmb/d is a big supply add, but may fall short of Iran and Venezuela reductions being more like ~2.14 mmb/d. However, absent a supply interruption, the larger than expected supply adds are likely enough to keep a lid on oil prices given that global oil demand will start to seasonally decline as we get to year end. The IEA forecasts Q1/19 oil demand to be 1 mmb/d lower than Q4/18. The other reminder is that oil markets are increasingly set up for an oil price spike in Q2/19 or Q3/19 as the normal seasonal increases in global oil demand kicks in in Q2/19 and Q3/19. The IEA forecasts Q3/19 oil demand to be up 2.1 mmb/d vs its Q4/19 forecast. Continue reading “Have OPEC/Non-OPEC Now Covered Almost 2 Mmb/d Of Iran Cuts And Venezuela Declines?”