Anyone superstitious should beware: not only is today Friday the 13, but the ides of March falls this coming Sunday. So it’s the perfect weekend for arguably two of the world’s most important leadership groups to be meeting to decide on tackling the financial crisis. The G20 meets in London on Saturday, while Opec gathers in Vienna on Sunday.
But while the G20 is facing the challenge of how to regain control, Opec for once is actually back in the driving seat.
As Morgan Downey, Standard Chartered’s New York-based head of commodity trading in the Americas told FT Alphaville, from September 2005 through to September 2008 the art of ‘OPEC watching’ had pretty much died as the cartel had no spare capacity. Now however, with capacity restored, the art is firmly back in town.
Downey himself is predicting the cartel will impose no new cuts as it bets on an increase in prices on the back of seasonal demand for gasoline from the second quarter onwards.
Of course, while Opec’s compliance has been much higher than usual, some still believe the full impact of the last cuts has not been properly felt yet. As JBC Energy states:
Opec is unlikely to reduce output at the upcoming meeting as they will likely wait for the impact of the last two cuts to be fully felt. Opec compliance has been high, averaging 80% in Q1 and over 90% in March. This is also reflected in the latest data from Oil Movements, which sees Opec seaborne oil exports (excluding Angola and Ecuador) at a five-year low of 22.76 million b/d in the first four weeks of March. Although inventory levels have started to come down, they remain high across the globe. However, crude volumes in floating storage seem to have halved from their peak of some 80 million barrels.
This contrasts to the cartel’s own monthly oil market report released on Friday, which suggests Opec should err on the side of further reducing its output on the basis the world economy was in a “dreadful situation” and that financial and macroeconomic indicators in the first quarter continued to paint “a very gloomy outlook across the globe.”
Olivier Jakob at Petromatrix, meanwhile, opines in his most recent report the cartel could very well have its cake and eat it too – cutting now and waiting to see whether to comply later. As he explains (emphasis FT Alphaville’s):
Price-wise we are currently at a very important cross-road which would be a golden opportunity for OPEC to finally turn the market around without having to make too great of an additional effort. The crude oil contango has fallen sharply to levels which will translate in further draws from stocks in floating storage and in Cushing.
The product cracks are under severe pressure which will translate in poor levels of refinery utilization which in turn will make for draws in stocks of products. The poor refinery crack also means that a higher crude oil price does not necessarily mean a higher price for the consumer until the product stocks are drawn. The outlook from the Word Supply and Demand balances does not provide a clear picture that a further OPEC cut is actually needed which also means that OPEC has the possibility of announcing a cut and take one month to see if they really want to implement it while they really concentrate on complying to the production levels set in Oran (this would amount to OPEC maintaining about the same “compliance level” as today but with an higher amount of oil taken out of the market).
If you want to keep an eye on who turns out to be right, the FT’s brand new ‘Energy Source‘ blog will be offering full coverage of the meeting, while Opec’s website will feature a video webcast.
Related links:
Crunching the Opec quotas – FT Alphaville
Liveblogging Opec’s webcast - FT Alphaville