Weekend Summary

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OPEC’s November Monthly Oil Market Report

OPEC released its Monthly Oil Market Report this morning, giving an update on oil market performance in October and expectations for the future. The organization raised demand expectations for 2017 and lowered its supply forecasts for the year, indicating a larger imbalance than previously expected, which could give markets strength. For refined product markets, gasoline demand in the U.S. has been weaker than expected, as has been Asian demand, but strong European demand and global refinery maintenance projects have helped keep prices elevated.

What the Saudi Arrests Mean for Saudi Oil Policy

Markets were rattles last week by Saudi Arabia’s anti-corruption purge, which imprisoned many of the Crown Prince’s political opponents. In general, though, the consolidation of power with the Crown Prince means little for oil prices, since Saudi Arabia was already committed to production cuts. However, whether the anti-corruption campaign was truly about corruption or about political power does matter for the initial listing of Saudi Aramco in the stock market. Political stability is necessary if the country is to privatize its oil fields, change its rent-seeking political structure, and diversify its economy. A stable Saudi Arabia bodes well for lower oil prices, since instability causes prices to rise. A successful initial public offering could help calm markets in general; but to get there, the Saudi government must show a commitment to openness and stability.

BP CEO says Middle East is not the biggest risk factor for oil (video)

BP’s CEO Bob Dudley noted this week that while many are focused on Middle Eastern instability, the biggest risk for oil prices this year is Venezuelan oil. With the country on the brink of default, investors could abandon Venezuelan oil producers, cutting off a significant portion of global production.

Crude Infrastructure Expanding to Accommodate Exports

U.S. exports have hit record levels over the past few weeks, thanks largely to widening Brent-WTI spreads. Shippers are having to find new ways to accommodating those exports; while the Gulf Coast has export facilities that have been shipping refined products, crude exports were only permitted in Dec 2015. Creating the storage and pipeline infrastructure to handle crude has taken time, and we’re only at the early stages of American crude export potential. The U.S. has tremendous capacity to increase our exports globally as infrastructure develops, which will help bring U.S. oil prices in parity with Brent and other international indexes.

Iraq Exports Rise while Saudi Cuts Shipments

Markets have been enthralled by Saudi Arabia’s disciplined export cuts to the U.S. and other buyers, which have helped oil inventories fall significantly over the last few months. On the flip side, Iraq exports have soared to fill in the void, with year-over-year volumes rising significantly. Saudi Arabia has fallen from 65% of all exports in the U.S. to 44%, while Iraq has grown from 10% to over 40%.