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OPEC, Russia Deal to Frustrate Huge U.S. Shale Output

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  • OPEC, Russia Deal to Frustrate Huge U.S. Shale Output

Russia and Middle Eastern oil producers want to keep oil prices between $50 and $60 per barrel, RBC Capital Markets said at the weekend.

It added that supply from the United States (U.S.) remained real problem for the Organisation of Petroleum Exporting Countries (OPEC).

Drop in U.S. fuel inventories forced oil price to climb above $52 per barrel on Friday amid plans from OPEC and major non-OPEC producers for a supply freeze agreement to help stabilise prices.

Managing Director/Global Head of Commodity Strategy at RBC Capital Markets, Helima Croft, said: “I think that Saudi Arabia, OPEC and the Russians hope that some U.S. production will come back but $50 to $60 is probably not enough to resurrect the entire U.S. shale complex.

“I don’t think they are aiming for $70 to $80, because I don’t think they want to bring it all back.” Croft told CNBC at the weekend that Russia and the Middle East want a “steady grind higher, not a gallop” in terms of prices.

With oil prices above $70 per barrel production from shale will be economic and profitable but at $50 per barrel, oil production from shale would be uneconomic.

In their most recent note RBC capital markets see WTI and Brent averaging $51 per barrel and $53 per barrel over the rest of this year, before increasing to $56.50 per barrel and $59 per barrel on average next year.

November’s OPEC meeting is seen as the forum where a supply freeze deal will stand or fall. RBC’s Croft said it will be down to Saudi Arabia whether anything meaningful is achieved.

“Almost all these other countries are basically maxed out and really it will have to be the Saudi’s and the GCC (Gulf Cooperation Council) who takes the cut,” she said. “If the Saudi’s incentivise the deal, I think it gets done,” she added.

And on fears that Libya will ramp up supply to previous levels, Croft said political turmoil in the country would prevent that happening. “Libya has three governments at the moment; there are 100 militias in Tripoli. The country is awash with weapons. It’s like asking Somalia to get their act together,” she said.

OPEC’s output has increased with Iran’s crude oil production reaching 3.665 million barrels per day in September, OPEC said in a monthly report published on October 12.

OPEC crude oil production averaged 33.39 million barrels per day (mb/d) in September, increasing by 0.22 mb/d over the previous month, according to secondary sources.

Crude oil output increased mostly from Iraq, Nigeria and Libya, while production in Saudi Arabia showed the largest drop. Iran has repeatedly stated that it plans to increase oil output to 4 million barrels per day by March next year.

Iran has the fourth largest oil reserves and the largest natural gas reserves in the world, while the country is also the third largest exporter of oil in the world and has nearly doubled since sanctions were lifted on its oil exports in January 2016. In fact, Iran is recovering market share faster than many experts had expected.

China and India are looking to further lock down Iranian supply, with a large planned investment in Iran’s oil and gas infrastructure. Iran is seeking $130 billion worth of investment to bring its energy sector up to date after years of sanctions, Reuters reported.

 

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Brent Crude Oil Approaches $70 Per Barrel on Friday

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Nigerian Oil Approaches $70 Per Barrel Following OPEC+ Production Cuts Extension

Brent crude oil, against which Nigerian oil is priced, rose to $69 on Friday at 3:55 pm Nigerian time.

Oil price jumped after OPEC and allies, known as OPEC plus, agreed to role-over crude oil production cuts to further reduce global oil supplies and artificially sustain oil price in a move experts said could stoke inflationary pressure.

Brent crude oil rose from $63.86 per barrel on Wednesday to $69 per barrel on Friday as energy investors became more optimistic about the oil outlook.

While certain experts are worried that U.S crude oil production will eventually hurt OPEC strategy once the economy fully opens, few experts are saying production in the world’s largest economy won’t hit pre-pandemic highs.

According to Vicki Hollub, the CEO of Occidental, U.S oil production may not return to pre-pandemic levels given a shift in corporates’ value.

“I do believe that most companies have committed to value growth, rather than production growth,” she said during a CNBC Evolve conversation with Brian Sullivan. “And so I do believe that that’s going to be part of the reason that oil production in the United States does not get back to 13 million barrels a day.”

Hollub believes corporate organisations will focus on optimizing present operations and facilities, rather than seeking growth at all costs. She, however, noted that oil prices rebounded faster than expected, largely due to China, India and United States’ growing consumption.

The recovery looks more V-shaped than we had originally thought it would be,” she said. Occidental previous projection had oil production recovering to pre-pandemic levels by the middle of 2022. The CEO Now believes demand will return by the end of this year or the first few months of 2022.

I do believe we’re headed for a much healthier supply and demand environment” she said.

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Crude Oil

Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

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Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

Brent crude oil, against which Nigerian oil is priced, rose to $67.70 per barrel on Thursday following the decision of OPEC and allies, known as OPEC+, to extend production cuts.

OPEC and allies are presently debating whether to restore as much as 1.5 million barrels per day of crude oil in April, according to people with the knowledge of the meeting.

Experts have said OPEC+ continuous production cuts could increase global inflationary pressure with the rising price of could oil. However, Saudi Energy Minister Prince Abdulaziz bin Salman said “I don’t think it will overheat.”

Last year “we suffered alone, we as OPEC+” and now “it’s about being vigilant and being careful,” he said.

Saudi minister added that the additional 1 million barrel-a-day voluntary production cut the kingdom introduced in February was now open-ended. Meaning, OPEC+ will be withholding 7 million barrels a day or 7 percent of global demand from the market– even as fuel consumption recovers in many nations.

Experts have started predicting $75 a barrel by April.

“We expect oil prices to rise toward $70 to $75 a barrel during April,” said Ann-Louise Hittle, vice president of macro oils at consultant Wood Mackenzie Ltd. “The risk is these higher prices will dampen the tentative global recovery. But the Saudi energy minister is adamant OPEC+ must watch for concrete signs of a demand rise before he moves on production.”

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Gold

Gold Hits Eight-Month Low as Global Optimism Grows Amid Rising Demand for Bitcoin

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Gold Struggles Ahead of Economic Recovery as Bitcoin, New Gold, Surges

Global haven asset, gold, declined to the lowest in more than eight months on Tuesday as signs of global economic recovery became glaring with rising bond yields.

The price of the precious metal declined to $1,718 per ounce during London trading on Thursday, down from $2,072 it traded in August as more investors continue to cut down on their holdings of the metal.

The previous metal usually performs poorly with rising yields on other assets like bonds, especially given the fact that gold does not provide streams of interest payments. Investors have been jumping on US bonds ahead of President Joe Biden’s $1.9 trillion coronavirus stimulus package, expected to stoke stronger US price growth.

We see the rising bond yields as a sign of economic optimism, which has also prompted gold investors to sell some of their positions,” said Carsten Menke of Julius Baer.

Another analyst from Commerzbank, Carsten Fritsch, said that “gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs”.

Experts at Investors King believed the growing demand for Bitcoin, now called the new gold, and other cryptocurrencies in recent months by institutional investors is hurting gold attractiveness.

In a recent report, analysts at Citigroup have started projecting mainstream acceptance for the unregulated dominant cryptocurrency, Bitcoin.

The price of Bitcoin has rallied by 60 percent to $52,000 this year alone. While Ethereum has risen by over 660 percent in 2021.

 

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