Crude is rallying on this final day of January, as hopes and projections of OPEC production cuts return to the fore once more. Before we charge into a new month tomorrow, amid weekly inventory data to boot, hark, here are five things to consider in oil markets today.
4) We here at the good ship ClipperData (aharrrgh, me hearties!) put the below chart together to highlight certain scenarios based on varying degrees of OPEC compliance for our recent ClipperView events (as well as the mighty Abudi Zein's Argus webinar yesterday). We can riff off this to highlight the impact of an import tax also.
We presented three scenarios:
- If OPEC / NOPEC show full compliance of production cuts, then prices could rise to as high as $65/bbl. If this were to happen, we believe that domestic production would rise to over 9.6mn bpd by year-end
- If OPEC / NOPEC show partial compliance to the tune of ~950,000 bpd (with Core OPEC participating fully, Oman too, Iraq cutting in part, and Mexico dropping naturally), then we believe a price of ~$53 seems reasonable. At this price level, we project domestic production to rise to 9.2mn bpd by year-end
- If the deal unravels, chaos reigns, and everyone returns to putting their pedal to the metal in terms of production, then prices could drop to $39, leading domestic production to finish the year at 8.8mn bpd
Applying a similar logic to a potential import tax, should we see demand for U.S. crude rise, we should see prices rise, and in response...higher production. Should we see WTI move to a material premium versus Brent - bid fare thee well to U.S. crude exports...because they'll be toast.
5) Now for something completely different. Let's switch gears as we finish up with an observation about the supermajor Shell. After its whopping $54 billion purchase of BG group, it is in the process of trying to pare some of its net debt, which has risen to $78 billion as at the end of Q3 2016.
After already making asset sales in every quarter of last year, it has just sold oil fields in the North Sea and Thailand for $4.7 billion. More sales are to come: it is targeting $30 billion in total divestitures to defend both its credit rating and its dividend.