Investing.com — Representatives of a coalition of 23 oil-producing nations called OPEC+ will plug their laptops into next week’s Zoom meeting, which takes place at least once every two months.
The parliamentarians usually disagree with the Saudi and Russian plans to run the group. It is also expected to finish off without a hitch with the decision to likely roll over the agreed production targets in December.
Ask any OPEC+ representative what the oil alliance hopes to achieve and the word “balance” will probably come up again and again.
The Saudi-led 13-member OPEC, or Organization of the Petroleum Exporting Countries, which took in Russia and nine other oil producers to form OPEC+ in 2015, actually has three announced goals: .
The third is to coordinate and integrate the oil policies of different producing countries to achieve “fair and stable prices.” Maintain “efficient, economical and regular supply” to consuming countries. And we strive to provide industry investors with a fair return on their capital.
In media interviews, however, OPEC spokespersons often combine these three ideals into a single pursuit of choice called ‘balance’. To them, the market is considered “balanced” when crude is trading above $100 a barrel, or at least above $90 (on Friday US crude settled below $80, Brent stalled below $87). One can speculate that someday oil will be more “balanced” in the eyes of OPEC when it hits $200.
This is because in the 60 years that OPEC has existed, oil producers have focused on just one thing. That is, price increases. In fact, one of OPEC’s goals, economic supply to consumers, is impossible. Because what is economical for consumers is not simple for producers.
From OPEC’s point of view, consumers want the lowest prices that would cause oil companies to go bankrupt and freeze investment in future production. (Think of oil as minus $40 a barrel.) Oil companies, on the contrary, are now declaring record profits. But they still don’t invest in production, instead citing the government’s unfriendly policies.
So here we are stuck in defining what a balanced price for crude oil should be.
The week that just ended has been a disappointment for oil bulls hoping to put the market on a higher trajectory after a dismal start to the year and what OPEC+ will do next week to “balance” the market. There is renewed hope that it will be possible to
In reality, OPEC+ struggles to balance the market – not from outside pressure, but from within.
Since early December, the Saudis have been plagued with a new headache – a G7 price cap on Russian oil – that has provoked all sorts of unwanted reactions in its closest ally, Moscow.
The price cap set a cap of $60 per barrel for Russian Ural crude. This is a discount of at least $27 per barrel to the latest settlement of the global benchmark Brent. On the real market, Russia sells the Urals even cheaper, especially under Brent where he sells up to $30 or more a barrel, especially to Indian buyers, trade sources say.
And because the money they’re getting for oil is dwindling, the Russians are shipping more barrels these days than the Saudis want. and to two destinations in China. India and China are the only two countries that allow the US to buy licensed Russian oil without question. Rising exports from Russia undermine OPEC+’s goal of tightening production It has also hit Saudi Arabia because India and China were also the largest Asian markets for Riyadh’s state oil company. Saudi Aramco (Tadaul:).
India purchased an average of 1.2 million barrels per day of Russian Urals in December. That’s a 33-fold increase from the previous year and a 29% increase from November. A Reuters report on Dec. 14 said Ural discounts at ports in western Russia sold to India under some deals would drop to $32-$35 a barrel, not including cargo. expanded.
Despite US sanctions banning imports of Russian-origin energy products, including refined fuels, distillates, crude oil, coal and gas, Indians at one point decided to ship fuel produced from Russian crude to the high seas. It was exported to New York via shipping.
Another Reuters report said China cut the price of Russian ESPO crude in December the most in months. ESPO is the grade exported from the port of Kozmino in the Far East of Russia, and Chinese refiners are the main customers for this.
At least one ESPO cargo arriving in early December was sold to independent Chinese refiners at a $6 a barrel discount to February Brent prices, Reuters reported, citing four traders familiar with the matter. said it was sold. This discount compares to a premium of about $1.80 taken by his ESPO barrel in China three weeks before he traded. The Russian crude discount worsened as Brent crude plummeted to his one-year low of just over $75 by Dec. 9.
If that wasn’t enough, another Reuters report on Friday said Russian oil loadings from Baltic ports are set to rise 50% in January from December levels. Russia loaded her 4.7 million tonne Urals and her KEBCO from Baltic ports in his December. The surge in January comes as sellers try to capitalize on rising global energy prices in an attempt to meet strong demand in Asia, the report said.
Meanwhile, Saudi Arabia has slashed the price of its Arab Light crude destined for Asia to remain competitive amid a ruthless undercut by Russia, which should be its closest ally within OPEC+.
Riyadh has also attempted negotiations with Moscow, and Saudi Foreign Minister Faisal bin Farhan Al-Saud recently said in an interview with Bloomberg that the kingdom is “engaging with Russia to keep oil prices relatively stable.” said.
“We have a very important partnership with Russia in OPEC Plus…that has brought stability [to] The oil market…we will negotiate with Russia about it,” Al-Saud said.
But on the same day as the Saudi minister’s speech, in Ashgabat, Turkmenistan’s capital, about 1,600 miles away, Russian Deputy Prime Minister Alexander Novak told state news agency TASS that Moscow “is not discussing possible oil production cuts with OPEC+.” said. .
Novak said the G7’s $60-per-barrel cap could force buyers to underpricing Russian products against rival crude benchmarks such as Britain’s Brent and the United States, prompting the Kremlin to slash oil production and push oil production to the Urals. I was answering a question about whether to call for an increase in the price of oil. West Texas Intermediate, Arab Light, Dubai Light.
“No, we are not discussing such issues,” Novak said.
It basically showed that the two countries had different ideas about what needed to be done at this point. , wants to remain competitive with the Arab Light Urals, but not flood the market. Hence the plan for the rollover at the December production target.
The G7 will apply two more price caps on refined petroleum products from Russia on February 5th. Who knows what effect they will have on the Kremlin.
But those in power in Riyadh know that if workarounds for these caps are not found, they could destroy the fairy-tale harmony within OPEC+ that has obscured what the organization really is. recognizing. Countries with contrasting finances and needs were forced to comply by Saudi Arabia and Russia with mere promises of price stability.
If for some reason that stability was shaken, those within the alliance could find little reason not to return to the old days when each state looked after itself – the Russians had already made a great example. I’m here.
Oil: market settlements and activities
West Texas Intermediate (WTI) crude, trading in New York, closed Friday at $79.38 a barrel after dropping $1.33 (1.6%) to settle at $79.68.
WTI fell 2.5% this week after gaining a cumulative 11% over the past two weeks. Since the beginning of the month, US crude oil benchmarks have fallen 1%.
London-traded Brent crude closed at $86.33 after dropping 81 cents, or almost 1%, at $86.66 after completing Friday’s session.
Brent fell 1.1% on the week after gaining almost 12% in the previous two weeks. From January to now, global crude oil benchmarks have risen less than 1%.
Crude Oil: Price Outlook
According to technical charter Sunil Kumar Dixit, without WTI in theaters OPEC+ will cite at its Feb. 1 meeting, U.S. crude oil benchmarks could fall below recent lows of $76 a barrel. It could plummet.
Dixit, Chief Technical Strategist at SKCharting.com said:
Despite repeated attempts to sustain a break above $82.60, Dixit noted that WTI ended the week in a relatively bearish mood at $79.68.
“Momentum appears to be trapped within the $4 range of $82.60 to $78.60 and needs to break through for further direction,” he added.
Dixit said a decisive breakout above $82.60 would pave the way for WTI’s next rally to $83.88. This could be followed by $84.70 for him. This is a 61.8% Fibonacci retracement from the drop from $93.76 to $70.06.
Natural gas: market settlements and activities
Henry Hub’s last month’s gas contract on the New York Mercantile Exchange closed on Friday at $2.856 per mmBtu, or million meters of British Thermal Units.
It closed 10% lower than a week ago at $2.849, little changed from Thursday’s close.
Gas futures are buoyed by an unusually warm start to winter 2022/23.
Prior to this week’s plunge to $2 levels, gas hit a 14-year high of $10 per mmBtu in August before trading as high as $7 in December.
Natural gas: price outlook
Dixit said a relentless selling effort in natural gas continued for a seventh week in a row, pushing prices down to $2.747 per mmBtu, with little sign of a crash yet.
“The Stochastic and RSI on the weekly chart have reached oversold levels and need to bounce from current lows at $2.60 and $2.35,” Dixit said.
Conversely, in an oversold situation, there will be a short-term rally towards the $3.00 and $3.30 resistance zones, followed by a peak towards the $3.50 and $3.70 supply zones, he added.
Gold: Market settlement and activity
Gold’s final trade at New York’s Comex was $1,928 on Friday after closing the session at $1,929.40, down just 60 cents.
The ., which some traders are watching more than futures, closed at $1,928.15, down 96 cents (1%) on the day. The gold spot hit an intraday high of $1,935.40 on Friday after peaking at $1,949.29 on Thursday.
The $1,950 resistance is a key test of gold’s ability to nearly beat its all-time highs from August 2020 and extend toward the record high of over $2,000 an ounce reached last April. . Gold is up more than 5% each.
Gold: price outlook
Dixit said the failure of physical gold to settle above $1,932 this week and dipping below $1,928 raises the possibility of further declines.
“Gold can revisit its recent low of $1,916 and extend the decline to $1,912 and then hold at $1,900,” he said.
Dixit said a stronger selling below $1,900 could lead to further declines to $1,880 and $1,870.
However, if the bullish trend in spot gold remains intact, it is likely that buyers will re-emerge in the support zone for upshots targeting $1,965 and $1,972, he said.
Disclaimer: Barani Krishnan does not hold positions in the commodities or securities he writes about.