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Hedgeye’s Senior Energy Policy Analyst Joe McMonigle shares his big takeaway from this week's OPEC+ meeting in Vienna, Austria that concluded today.
Key call-outs include:
"The biggest news from OPEC’s meeting here in Vienna was a new metric and new target for a draw in global crude stocks. OPEC’s new goal, announced by Saudi Minister Khalid al-Falih late Monday, is the average of the 2010 to 2014 range ditching the earlier metric of the 5-year average. The new target would require an additional draw of about 200 to 250 million barrels from global stocks (see EIA chart below). The revised effort is designed to establish an even tighter physical market than the previous metric of a 5-year average range with the end-goal of achieving a more stable and higher price range. The Saudi-led initiative also hopes to demonstrate that the producer group is serious about the challenge of meeting balanced oil markets. It is indeed a challenge because the 2010 to 2014 range occurred without surging US shale. In the last two years, US shale has added 3 million barrels per day to oil markets and is forecasted to grow by another 500,000 barrels by the end of 2019."
"The OPEC+ group’s rollover of the production cuts for a longer 9-month period to March 2020 ushers in a new active management mode of oil markets. An initial lift in prices fizzled Monday as the marathon OPEC meeting was drawn out over talks on the formal charter of the OPEC+ cooperation. We think prices will strengthen with better messaging today and an expected crude draw in the US this week. By preloading the cuts into 2020, OPEC also hope to avoid a year-end price decline that typically occurs with lower Q1 demand forecasts. It’s a smart move that likely puts a floor on prices absent a major stumble in the global economy. It’s also a low risk strategy since OPEC can revisit the policy at its next regular meeting in six months time in December. There’s already talk here that the December meeting may extend the cuts for all of 2020."