Oil Continues to Rise on Saudi Promise: Rystad
Single-handedly, Saudi Arabia has helped Dated Brent crude break the $55/barrel mark for the first time since February last year, said Rystad Energy January 8.
The latest production cut from Saudi Aramco and the expected higher compliance from the Opec block has eroded crude stocks for nearly every month in 2021, it calculates. The roughly 7% jump in the oil price that followed the January 5 meeting also quickly fed through into higher market capitalisations for oil producers.
But Rystad warns of some major unknowns. There has been no official mention in Opec+ communications or signature on a dotted line regarding Saudi Aramco's reported 1mn b/d cut for two months, it says; nor is it known exactly what "back-door deals were struck to secure such a gift – promises of better compliance, regional stability, or other political concessions?"
Rystad said:"1mn b/d worth of oil for a two-month period is not just spare change, and besides a higher price, we wonder what Saudi Arabia is getting besides just political goodwill. The monthly meetings and surprises from Opec+ make the future harder to predict, a tool we believe the group will continue to use to its full advantage this year."
Press reports said that only Russia – the biggest party in Opec+ and a major opponent of extending the output cuts – had been taken into the confidence of the Saudis, who retained the element of surprise in making their announcement on January 5, after the meeting the day before ended inconclusively.
Opec+ knows that should market conditions allow, the group could easily ramp up by 2mn b/d and still keep the market balanced, Rystad said. "However, this would go against the previously stated policy of a gradual ramp-up that called for limiting monthly increases to 500,000 b/d per month, the validity of which for now remains a question-mark."
At an 11% slope in long term oil-indexed LNG contracts, each $1/b rise in the crude price equates to about a $0.11/mn Btu rise in the price of LNG. This winter's cold spell and high freight rates have helped push Asian spot prices far higher however, with the S&P Global Platts Japan Korea Marker (for LNG delivered ex-ship) settling January 7 at $17.30/mn Btu for February delivery, up 10% on the day. That would be the equivalent of $160/b crude.