Member Info for PUTUP

Martijn Rats, CFA – Morgan Stanley

November 30, 2023 11:41 PM GMT

Formal quota were left largely unchanged, but several countries deepened their voluntary cuts at yesterday's OPEC meeting. Even with only partial compliance, this should prevent stock builds in 1Q and be sufficient to support Brent in the mid-80s. Hence, we leave forecasts unchanged.

Quota largely unchanged, but additional voluntary cuts extended and/or deepened: OPEC countries used to set simple production quota. However, over the course of 2023, this has evolved into a system with official quota and additional voluntary cuts on top from a subset of countries. At yesterday's meeting, the formal quota were left mostly unchanged but several countries either deepened or extended their additional voluntary cuts. In aggregate, these additional voluntary cuts add up to a headline figure of 2.2 mb/d for 1Q 2024. However, 1 mb/d of that is an extension of Saudi Arabia's voluntary cut, which was already in place for 4Q23. Another 0.5 mb/d comes from Russia, which is formulated as an export cut, not necessarily a production cut. Also, Russia's cut is spread across crude oil and refined products, which makes it hard to track. The remainder comes from Kuwait, Iraq, the UAE, Oman, Kazakhstan and Algeria.Only the West African countries saw a revision of their quota, following technical assessments of their production capacity by three independent agencies. Nigeria's quota increased by 120 kb/d to 1.5 mb/d, but Angola's quota came down 170 kb/d to 1.11 mb/d. However, Angola has already indicated that it does not intend to stick to this new quota.Commitment to cuts appears uncertain; expect only partial compliance: The fact that these cuts took such a long time to negotiate, and are still not part of the formal quota, hints at only limited commitment from OPEC countries to implement them. As a result, the impact on our supply/demand balances is likely less than the headline figure suggests. The extension of the 1 mb/d voluntary cut from Saudi Arabia was already incorporated in our forecasts; in fact, we already assume that Saudi Arabia will ultimately extend these cuts to 2Q 2024 as well. Of the remaining 1.2 mb/d headline cut, we assume that, in the end, only half will eventually be implemented. Hence we have lowered our OPEC+ production forecast for 1Q24 by ~0.6 mb/d. Brent forecast unchanged around mid-$80s: This updated supply forecast has flipped our 1Q24 balances from a 0.3 mb/d surplus to a 0.3 mb/d deficit. However, we still see the market turning into a small surplus again in 2Q and 3Q 2024. Across next year, we see inventories building, albeit only slightly. As discussed previously (see The Oil Manual: OPEC's Balancing Burden), we estimate that this inventory outlook supports Brent in the mid-$80s, so we leave our Brent forecast unchanged at $85/bbl flat throughout 2024. Still, this estimate depends on OPEC+ keeping production constrained also at the next meeting, which is sched

Best watch out or your tin foil hat will fall off Andy

LOL. Nah. Just capitalism at work. No need for conspiracy.

US oil production rises to fresh record

Myles McCormick in Houston

US oil production notched a new record in September, with output of 13.24mn barrels a day, as growth continues just a month after the country broke its pre-Covid highs.

Production rose by 224,000 barrels a day, or 1.7 per cent, during the month, according to data from the US Energy Information Administration.

The US is now producing more oil than any country in history just as Opec+ countries curb supply in a bid to tighten supplies and bolster prices.

The growth in American crude production comes in spite of a more cautious approach to drilling being imposed by Wall Street on publicly listed companies and fears around dwindling volumes of prime acreage.

PS: the geopolitics is about as fundamental as it gets for GKP currently

Straycat, sorry to see you go. You were one of the (few) good guys. You can always return!

"While the difference between this and current Brent ($79) is significant, it's not massive. Also, importantly, local refineries likely sell their refined products into the local market and the 'arbitrage' versus Brent is likely unavailable."

I don't look at Twit/X and certainly try to avoid looking at any cr*p posted by that lunatic. You can start by comparing that versus the company's publication in February. The big difference is that the company's list aggregates the large retail brokerages. So the likes of Hargreaves Lansdowne, Interactive Investor, Halifax, Barclays etc make it to that list whereas the other doesn't bother since ownership within those custodians is spread across a lot of minnows. There's a ton of churn in retail.

Turkey may well implode

"Turkey raises interest rates by 5 percentage points to 40%"

Where are you getting your 'Top 30 Holders' list from? Most aren't particularly accurate as quite a good deal of digging is needed to get to true beneficial ownership. Typically such is done via investor questionnaires. The top 10 shareholders own just over 61% of the company.

Re Lloyds: "Equiniti Financial Services Limited (EFSL) acts as custodian and execution-only stockbroker for your shares."

🤣 Dream on. Almost all of the net cash flow from local sales will have gone to payables normalisation.

No consensus ahead of meeting regarding production cuts => delay to meeting =>oil price down. Has bounced back a bit since earlier in the day.

"The IOC's need to again act together and next gentle increase the price of the crude they are producing "

Belgrano, you assume that the IOCs are negotiating prices. I think this is a big mistake.

They do have the right to sell their share of PRODUCTION (as iterated by Soden and in contrast to the BS posted here by Paul and all his monikers) but that right to do so is embedded in a contract that Baghdad deems unlawful. So they would have to tread very carefully and I doubt they feel free to completely independently market their own share of oil production separately from that delivered to the KRG/Iraq.

People also see to have forgotten the discounts to Brent that prevailed prior to the pipeline closure which reflected transportation fees and a quality discount. They averaged $34 a barrel in the period Sep '22 to Feb '23. So a local price of, for example, $30 a barrel equates to $64 Brent. While the difference between this and current Brent ($79) is significant it's not massive. Also, importantly, local refineries likely sell their refined products into the local market and the 'arbitrage' versus Brent is likely unavailable.

🤣 OPEC meeting delayed

"are not standing by watching us pocket $39/bbl for local sales "

Who is "we"? GKP doesn't pocket anywhere near that amount - even if they could sell the oil for $39 a barrel.

And don't forget, local sales are at the grace of SOMO...

That was for the last payment received and actually it was more like $4.14 per barrel PO less CBC (Sep '22 production)

I would be shocked if they get a fixed $ per barrel regardless of the price the oil is sold at...

"cost plus $6 dollar a barrel "

They are only getting costs plus $4.20 a barrel now

Doesn't mean he gets it right

Price signals in the oil market tell a story of softening fundamentals: not only has the flat price come down in recent weeks, but physical differentials in the North Sea market have weakened, the Dated-to-Frontline swap has rolled over, the CFD curve is no longer as backwardated, and West African crudes have lost their premium - all telltale signs that the oil market is not as tight as it was a few months ago.

Looking ahead, much depend on OPEC's upcoming production decisions. Demand growth this year has been strong: at ~2.2 mb/d, demand grew well above the historical trend rate. However, this is likely to slow down in 2024 – we peg next year's growth at ~1.2 mb/d.

At the same time, growth in non-OPEC supply will likely also slow but remain significant. Notwithstanding a significant slowdown in US shale in 2024, non-OPEC production will likely still grow by ~1.4 mb/d. That is less than growth of 2.2 mb/d in 2023, but would still be sufficient to meet all global demand growth.

Surprisingly, this does not necessarily change in 2025 or 2026 either. Despite low levels of upstream capex in 2020/21, the pipeline of non-OPEC projects alone appears sufficient to meet all global demand growth in the next few years at least.

Taken together, this leaves little room in the oil market for additional OPEC oil. We estimate the 'call-on-OPEC' at ~28.3 mb/d, practically unchanged for the fourth consecutive year. Still, by now, OPEC spare capacity is close to ~5 mb/d – near its 20-year high – and OPEC market share has already declined ~220bp over the last year.

Although this creates longer-term tension in the oil market, OPEC has previously indicated – in words but also in action – a strong intention to balance the market. We already incorporated an extension in our supply/demand model for Saudi Arabia's voluntary cut to end-1Q24 several months ago. However, we now assume that this will be further extended to end-2Q24 and that Saudi Arabia's production will increase only gradually during 2H24, but remain (well) below its formal OPEC quota of 10.5 mb/d during that period.

On that trajectory, global inventories would remain broadly unchanged, which would support Brent prices around the mid-$80s, we estimate. Hence, we leave our price forecasts unchanged.

Needless to say, there are risks to either side of this forecast. During the summer, Saudi Arabia curtailed exports significantly, falling to ~5.6 mb/d in Sept, down from ~7.4 mb/d during April. This gave a considerable jolt to oil markets, and would do so again if repeated.

At the same time, OPEC market share is under long-term pressure, and history also warns of the risk this eventually poses. If OPEC ever were to decide to reclaim its lost market share, downside risk to prices would also be significant.

"in genel for example why are insiders buyers buying up all the shares at these levels, just to lose money? "

So far Bilgin Grup Doğalgaz A.Ş. has lost £1.1 million on its purchases (-19%). They've bought 5.89 million shares (roughly 2% of the company) at an average of 98p versus a current price of 79p (versus a low of 74.06p).

Date Number of Shares Price

29-Mar 16,911 1.092474

29-Mar 220,000 1.168145

3-Apr 213,488 1.131264

2-May 300,000 1.0867

2-May 100,000 1.095

30-May 750,000 1.1108

30-May 25,000 1.11

1-Jun 450,000 1.118

1-Jun 100,000 1.117

7-Jun 630,000 1.2

18-Oct 2,976,747 0.83

18-Oct 107,000 0.8577