Discreet communications, squabbling, resisting and even a comparison to snacking. Rigzone’s panel of commentators saw all of these things – and more – in the oil market this past week. Keep reading to find out why.
Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?
Tom McNulty, Houston-based managing director with B. Riley Financial’s Great American Group: The back-channel discussions between the U.S., Saudi Arabia, Russia and other global oil players happened on and off all week. The lack of clarity created large price swings and volatility nearly 24/7. It’s like a bunch of kids at snack time, “gimme, gimme, gimme.”
Barani Krishnan, Senior Commodities Analyst, Investing.com: OPEC+ agreeing to meet after another Saudi-Russian squabble certainly met the expectations – or rather, prayer – of oil bulls. It certainly surprised and caught some bears who seemed ready to send prices back into the teens if the alliance failed again to have a sit-down.
Jamie Webster, Senior Director, Boston Consulting Group Center for Energy Impact:
- Panned out: Oil storage built strongly, with U.S. data showing the biggest combined product/crude build in the history of the data series, an agreement by OPEC+ looks like it is coming together, with the G20 ministers meeting on finalizing it as we speak (Friday morning).
- Did not pan out: Despite the prior week’s big (and temporary) rally after the announcement of a potential cut, the actual deal was insufficient and oil prices have fallen lower.
Rigzone: What were some market surprises?
Mark Le Dain, vice president of strategy with the oil and gas data firm Validere: A surprise was the number of U.S. producers that oppose mandated cuts. Cuts are difficult in high-decline basins, as not replacing production creates more of a treadmill, but we thought companies would have been less vocally opposed – at least ahead of the larger OPEC meeting.
Krishnan: To many, the biggest surprise was that the Big Oil companies in the U.S., namely ExxonMobil and Chevron, are still resisting production cuts in a market like this. But to me, this is no surprise at all. As I’ve been saying, the U.S.’s shale enemy isn’t just the Saudis and Russians. It’s also the supermajors like Exxon and Chevron, including leading names like Occidental, that want shale to die so that they can have a larger share of the market to themselves. Like vultures, they also want to swoop in and pick up for cents on the dollar the battered assets of these shale drillers, which they can always develop later. Donald Trump thinks the Arabs and Russians are the greedy ones in wanting the oil markets all to themselves. But he doesn’t know – or does but keeps quiet – about the greed of oil’s Big Boys on his own turf.
McNulty: I was surprised that we did not have more bankruptcy filings here this week. Energy companies and banks seem to be holding on. But for what? Higher prices? The demand-side improves? Assets with very high volatility, like oil should be financed with more equity, and less debt. When prices stabilize, they will not be high enough to save over-leveraged balance sheets.
Webster: No one saw that it would be Mexico that would be the potential spanner in the works for a broad OPEC+ deal.
To contact the author, email mveazey@rigzone.com.
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