Hedgeye hosted client lunch briefings in New York and Boston earlier this week to preview the upcoming OPEC meeting on June 22. Former OPEC President & Algerian Energy Minister Chakib Khelil joined Hedgeye Energy Policy Analyst Joe McMonigle to discuss next steps for OPEC.
We have provided a full recording of the Boston lunch briefing from June 11 here with Minister Khelil and moderated by Joe McMonigle.
Replay | Energy Policy: OPEC Lunch with Former OPEC President & Algerian Energy Minister on OPEC's Next Steps
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But here are some key takeaways from Minister Khelil’s comments at both the Boston and New York events.
- Khelil believes that there is no chance that OPEC keeps the status quo on production levels, and therefore, sees increased production coming out of the meeting.
- He believes the conversations among OPEC ministers now is about how much to increase production. He thinks 500,000 barrels per day (b/d) is a good compromise that Saudi Arabia would try to balance between Russia’s request for 1 million b/d and other OPEC members like Iran and Iraq that want no change in production levels.
- Khelil said OPEC would not scrap the production cut deal but would achieve higher production by relaxing the compliance level from 150% to 100%. However, this meant that only Saudi Arabia, UAE, Kuwait and Russia will be able to contribute to the increase. So there may be a reallocation of individual country caps but the overall cap of 32.5 million b/d would remain in place.
- Why not 1 million b/d increase that was floated by Russia in St. Petersburg? Khelil said that OPEC does not like to get ahead of potential developments that may or may not happen. So the only need now is to address lost Venezuela production of about 600,000 b/d. Iran sanctions are a concern but actual production is not yet being impacted so he thinks OPEC will wait to address it at the November meeting.
- His calculations for the “Call on OPEC Oil” (ie demand for OPEC oil) for 2018 will be 31.7 million b/d which is lower than OPEC’s forecast of 32.8 million b/d and lower than the OPEC production agreement ceiling of 32.5 million b/d. In addition, he calculates that the Call on OPEC Oil in 2019 will be even lower at 31.3 million b/d. He cites his lower demand numbers as another reason why he does not think OPEC will not want to increase production by a higher amount than 500,000 b/d. He said OPEC would be wary of getting ahead of the call number and prefers to add production later if it is needed.
- He does not think the meeting will be that contentious as advertised in the press. He said members are accustomed to compromise and it is rare for there not to be an agreement on next steps.
- He believes the main reason Saudi Arabia is taking steps to add production is in response to pressure from the US President. Secondarily, he thinks the Saudis are also trying to be flexible on production levels in order to keep a good working relationship with Russia and continue with joint market coordination efforts.
- Khelil’s price range for Brent is $65-$75 but does not see oil going higher than $75 for the rest of 2018.
