EMEA News
Prospect of Saudi, Russia "Catholic marriage" Greeted With A Near-3 Percent Crude Price Drop
Once again, crude prices on Wednesday dropped, this time by almost 3 percent, contrary to the intentions of the Organization of the Petroleum Exporting Countries (OPEC) in the one week old wake of it agreeing to extend its production cutback efforts to March of next year.
And even though traders and a host of analysts indicate that the best days of the cartel's influence on prices are long gone, Mohammad Barkindo, secretary-general for OPEC, and Alexander Novak, energy minister for Russia, stated on Wednesday that they're trying to create a permanent alliance.
As West Texas Intermediate dropped $1.34 to $48.32 and Brent fell $1.53 to $50.31 per barrel, Novak told the press in Moscow that "It is necessary to work out new framework principles for continued steady cooperation between OPEC and non-OPEC even after the expiration of the Vienna agreements."
He went on to remark that the cooperation will continue long after the market is rebalanced, and said that a six-nation committee overseeing implementation of the cutback initiative will consider proposals for how to sustain the partnership when it meets next month.
Bardinko, also in Moscow, added, "'The cooperation and collaboration between us - OPEC and non-OPEC - will outlive the implementation process; we are putting in place, if you like, the building blocks for a Catholic marriage.
"We do not expect a divorce in this marriage."
While the comments are remarkable in light of the long history of distrust between the OPEC and Russia, Wednesday's price drop along with the criticism of the OPEC extension indicates that whatever show of force the "Catholic marriage" was intended to have, it is lost on industry players.
John Kilduff, founding partners at Again Capital, said that the market has serious doubts about OPEC and Russia's ability to bring about a rebalance, despite their rhetoric: "The game of chicken between them and the market is back on again."
Kilduff also noted that with regards to the OPEC meeting of May 25 when the nine month extension was agreed upon, "The meeting was much more of a failure than people realize because of what wasn't achieved: there are no caps on production for Libya, or Nigeria, or Iran."
Indeed, Libya has shipped an average of 500,000 barrels per day (bpd) of oil to date this year, up from 300,000 bpd in 2016, and production reached 800,000 bpd earlier this month.
Rystad Energy AS added insult to injury with data showing that U.S. output will reach a record 10 million bpd by the end of this year.
All this bad news - at least, bad news for OPEC boosters - prompted Bob Yawger, director of the futures division at Mizuho Securities USA Inc., to say, "There doesn't seem to be an end to supply out there, and demand is not exactly rip-roaring."
Arguably the most outspoken condemnation of OPEC was voiced earlier this week, when Todd Horwitz, chief strategist at Bubba Trading, called the cartel "a phony, crooked organization" that doesn't "follow the guidelines they set to begin with....I think OPEC has no meaning other than a quick pop here and there."
