REPLAY:
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Hedgeye held a special OPEC meeting preview conference call for clients on Thursday with Director of Research Daryl Jones and Energy Analyst Joe McMonigle. Joe just returned from a 10-day trip to Saudi Arabia and Dubai and shared his forecast of expected OPEC action next week.
OPEC is preparing to make deeper additional cuts that we believe is in the range of 500,000 to 600,000 barrels per day (b/d) in the second quarter, as recommended by its Joint Technical Committee (JTC) earlier this month. The cuts are likely to be announced at the upcoming OPEC+ meeting in Vienna on March 5-6 in response to lower demand forecasts.
We believe Russia will support the move. Despite the mixed signals coming from various top officials in Russia, we think the deal was likely sealed in a call between King Salman and President Putin on February 3.
In our view, Russia’s strategy blocking an early February OPEC meeting and insisting on the March meeting dates was in the hope that the delay may result in clearer market data that would mitigate the need for deeper cuts. With the growth of the virus cases outside of China and the market reaction this week, the OPEC meeting is properly set to approve the Saudi plan of action.
All of this is playing out as we forecasted in our early February client that predicted no early OPEC meeting but to expect “significant deeper cuts with potential additional shock-and-awe voluntary cuts from Saudi Arabia that will at a minimum put a floor on prices but likely stabilize prices higher in the second quarter.”
In December the OPEC+ group agreed to 500,000 b/d in deeper cuts from 1.2 million b/d to 1.7 million b/d. Moreover Saudi Arabia announced a surprise voluntary cut of an additional 400,000 b/d so the total OPEC+ deeper cuts for the first quarter are 2.1 million b/d.
If, as we expect, OPEC announces additional cuts of at least 500,000 b/d, the total cuts for the second quarter will be at 2.6 million b/d. We also believe there is the potential for an additional voluntary cut from Saudi Arabia in the neighborhood of 500,000 b/d – enough to get the total deeper cuts to 1 million b/d.
The full replay of the OPEC meeting preview call is available at the link below.
