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  • Vakhshouri: OPEC+ Is More a Risk Management Alliance

Vakhshouri: OPEC+ Is More a Risk Management Alliance

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Moomoo News Apr 17 13:10 · 6383 Views

Oil is trading higher for a second day after the US said it would reduce Iran's energy exports to zero. Meanwhile, OPEC+ is making a fresh push for members to compensate for exceeding their oil production quotas. Sara Vakhshouri, President & Founder of SVB Energy International joined Bloomberg's Horizons Middle East and Africa anchor Joumanna Bercetche to discuss the outlook of the oil market.

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Transcript

  • 00:00 Sir, maybe let's just start with the price action that we've had in oil over the last couple of weeks because we are actually trading next to four year lows now.
  • 00:07 Yes, we've seen a bit of a balance the last couple of days, but
  • 00:09 you know Brent was getting closer and closer to that $60.00 mark
  • 00:13 and we've seen many think tanks, many
  • 00:16 outfits downgrade their estimates for
  • 00:19 oil demand growth over this year, next year on back of the potential impact that tariffs could have to the global economy.
  • 00:25 Do you think it around these levels so close to around $65 for brands
  • 00:30 that that's trimming to the demand outlook has already been sufficiently discounted?
  • 00:38 Well, it's a.
  • 00:39 It's a good.
  • 00:40 Discussion to start with the impact of tariffs on demand, as you mentioned.
  • 00:45 Most of the
  • 00:46 major at least state of producing
  • 00:49 organizations, both IEA and OPEC reduce their demand expectations.
  • 00:53 Also, it's very important to note that it's not just
  • 00:57 the impact of tariffs on
  • 00:59 the.
  • 01:00 Demand that it impacting the market, but if we look closer we see that the spread.
  • 01:05 Between the light and
  • 01:07 heavy crude oil or Brent and to violate
  • 01:09 oils is
  • 01:11 reducing and narrowing and something that happened in April was that
  • 01:15 the EFS
  • 01:17 spread or the spread between the two crude major crude quality and linked crudes to them
  • 01:22 is narrowing, which basically means
  • 01:24 that the.
  • 01:25 Major producers
  • 01:26 at the OPEC
  • 01:27 and golf producers are losing the.
  • 01:30 Their advantage
  • 01:31 somehow to the
  • 01:32 lighter crude oil.
  • 01:34 So there are a lot happening.
  • 01:37 Yeah, interesting.
  • 01:39 I also want to draw your attention to
  • 01:42 a a
  • 01:42 quota, OPEC Plus quota
  • 01:45 that was published yesterday.
  • 01:46 And it's interesting there because remember when OPEC Plus surprised the market a couple of week ago, weeks ago and they said that they're going to
  • 01:53 accelerate bringing extra barrels to market.
  • 01:55 But at the same time, the understanding was that there would be some
  • 01:58 discipline and still in the group to ensure that other members were not overproducing.
  • 02:04 Yesterday's data has showed that Kazakhstan are massively overproducing versus what their quota is and there's been only marginal improvement for the likes of
  • 02:13 Iraq and Russia.
  • 02:15 So long as these other OPEC members continue to over produce,
  • 02:20 how difficult is it going to be for
  • 02:23 OPEC Plus to keep a tab on prices?
  • 02:28 First of all, I want to mention that it's remarkable.
  • 02:30 That how, especially in this environmental uncertainty that most countries are putting their
  • 02:35 economic advance
  • 02:36 advantages first.
  • 02:38 Can it still keep the alliance going on and the fact that just yesterday we saw that?
  • 02:45 Compensation schedule coming out then
  • 02:47 the even the verbal
  • 02:49 commitment that these countries are
  • 02:52 putting its
  • 02:53 itself
  • 02:54 very.
  • 02:55 Important at this environment particularly and shows that
  • 02:58 the organization is.
  • 03:00 Deal is aligned and they're working into that.
  • 03:04 The treaty
  • 03:06 strategy that
  • 03:07 Saudi energy minister
  • 03:09 always
  • 03:10 mentioned and referred to that
  • 03:11 they have been very cautious.
  • 03:13 And while yes, they are trying to,
  • 03:16 they surprise the market by increasing their
  • 03:20 production increase plan accelerated more than it was expected, which again I mentioned it's important for them not to
  • 03:27 increase their market share, but to defend.
  • 03:30 And maintain their market share not just because of the lower demand,
  • 03:33 but also because of the
  • 03:35 this narrowing the spread and increased spot market spot selling in the market.
  • 03:39 So.
  • 03:40 So it's very important for the
  • 03:41 organization.
  • 03:42 But if you look at the
  • 03:44 compensation schedule and comparing it with the amounts that OPEC is going to increase the production,
  • 03:51 the difference is very minimal.
  • 03:53 And also it's very important to note that as we are heading to the warmer season, most of the producing countries.
  • 04:00 Especially in warmer environment are going to consume more oil so they have been.
  • 04:05 Very cautious and
  • 04:06 unlike
  • 04:07 many of the
  • 04:08 assessments or expectation in the market that are always looking at OPEC as a price setting club and they're always trying to interpret,
  • 04:16 interpret OPEC
  • 04:17 decisions into
  • 04:18 which price goal OPEC had.
  • 04:20 It has been really a risk management alliance, particularly since.
  • 04:25 COVID
  • 04:25 that in the
  • 04:27 height of every unpredictable and uncertain
  • 04:30 market environment that we had, OPEC alliance has been trying to somehow adjust.
  • 04:35 Just its production by
  • 04:36 managing the risks in the market.
  • 04:39 Yeah.
  • 04:40 So I want to
  • 04:41 round up the discussion with a question about the Energy Secretary Chris Wright's visit to the region and to Saudi Arabia.
  • 04:48 There was a lot of excitement of the weekend about the potential for
  • 04:51 a nuclear deal with Saudi Arabia.
  • 04:54 And the timing is interesting, of course, because all of these US, Iran discussions are going on.
  • 04:59 But
  • 05:00 what do you make of the news that cut that came out and that the fact that Saudi Arabia may also be looking to launch their own nuclear program with the blessing of the United States?
  • 05:12 This is very good point.
  • 05:13 I remember both of us
  • 05:15 around a month ago, we had this discussion referring to one of the reports in the market that
  • 05:20 was arguing that since Saudi's oil export is reducing to US and US is producing more oil,
  • 05:26 the relation between two countries is somehow decreasing.
  • 05:29 And I think
  • 05:30 this was
  • 05:31 very interesting because if you look at the itinerary of
  • 05:35 Secretary of Energy to Saudi, it was
  • 05:38 a very warm welcome and they visited
  • 05:41 the Manuel one number one, which it's interesting because usually well #7 is more
  • 05:47 celebrated
  • 05:48 among,
  • 05:49 you know.
  • 05:50 In the oil industry, because that was the first commercial well,
  • 05:53 but they visited well #1.
  • 05:55 Which
  • 05:56 kind of reminds.
  • 05:58 It's a historical reminder, very.
  • 06:00 Reminder that that perseverance not giving up and the trust that the two countries have in each other at
  • 06:07 the both time of
  • 06:10 pipe and low
  • 06:11 how hand in hand they have been patient and working together and kind of a nod to a new chapter that
  • 06:17 it was mentioned by.
  • 06:20 US
  • 06:20 Secretary of Energy
  • 06:21 potential civil nuclear
  • 06:24 power generation.
  • 06:25 Agreement between US and Saudi Arabia, so
  • 06:27 moving beyond oil but into a new chapter.
  • 06:30 So I found it very meaningful, the visit and particularly the places they visit, that
  • 06:36 the type of welcome that
  • 06:37 US Secretary
  • 06:38 received.