Week 10 delivered yet more woes for the Oil sector as another sizable BUILD came in via the weekly EIA data figures. As I warned last week, the market was showing signs of tiredness. The supporting data just wasn’t strong enough to offer the conviction to head higher and through $58pb. OPEC’s compliance has been good, in fact, better than many were expecting. But with US production remaining solid and tankers galore docking their pay loads, it’s not making much difference… just yet. The rebalance will come, but it’s likely that OPEC and Non OPEC players will need to extend the 6 month deal (ending in June) by at least 3 months+. The problem for the Saudi’s near term is that they cannot commit to these additional cuts or at least admit to them being required as it will only serve to strengthen PoO at a time when US shale most needs it. The danger is that the Saudi’s begin to play another short term squeeze game to hurt the US shale players – many of which may have already over committed in cash terms to new wells based on PoO being $55pb+. A drop to $45pb for a couple of months is not going to hurt the Saudi’s that much but certainly will refocus other OPEC players minds – including non OPEC players like Russia. The most likely play for the Saudi’s near term is to do just that. Play it cool and let the oil market feel a little pain again for a couple of months. This may see the likes of Venezuela, Iraq, Iran and Russia contribute to stronger cuts with the Saudi’s remaining at today’s levels. In short, other members will have to cut more deeply if they want PoO in the $60’s. It’s certainly a period of cat and mouse and unless US data comes out this week (tomorrow) to support the rebalance, then PoO is going to get pushed back into the $40’s (Brent). Another sizable BUILD and it could be heading for the $30’s if the Saudi’s remain quiet. With the Saudi’s treasured Aramco deal planned for an early IPO in 2018, time is clearly of the essence. The cat and mouse game is not likely to last too long on that basis. Unless of course, the Saudi’s shelve the Aramco IPO plans and put them back to 2019.
Week 10 Results below:
As expected the sharehub top ten are suffering the woes of a longer than expected rebalance. The telegraph leads the way with the Daily Mail catching up fast.