#OPEC+ #Oil Cuts Deal: @BMO Sees Best outcome of Prices Stabilizing between $20-30 as demand rebuilds

From BMO:

 CONCLUSION:. On the positive side, the agreement avoids a price collapse as it reduces the risk of filling up the global storage capacity completely and most importantly it ends the price war between Russia and Saudi Arabia.  Our research team expects the price of oil to remain between $20 and $30 through June while the market assesses the compliance and more importantly the potential rebound in demand at some point. As of this morning, the market reaction has been somewhat muted with Brent and WTI relatively unchanged.

1- TOTAL CUTS OF 13.4Mb/d if you had OPEC at 6.1M b/d, OPEC+ members mostly Russia at 3.6Mb/d and G-20 cuts monastery US/Canada/Brazil at 3.7Mb/d. The cuts are focused on the May-June period then they go down to 8M b/d for July-dec.

2- AVOID PRICE COLLAPSE DUE TO LACK OF STORAGE- Demand destruction is estimated at 17Mb/d for 2Q ( compared to a 13.4M b/d cut but an actual cut from the March level of ONLY 7Mb/d for OPEC+ members). So this means inventories will go up by about 984M barrels versus a total storage capacity including floating storage left of 1.2 billion barrels.

3- END OF THE PRICE WAR- probably the most positive is all this is the end of the price war between Russia and Saudi Arabia

4- CUTS BY THE G-20? US/Canada/Brazil but allows Norway are talking about cutting 3.7M b/d of supply but it is not very clear how. It will  be mostly through Strategic Petroleum Reserves ( SPR) purchases, shut-ins and natural declines.

5- THE TEXAS RAILROAD COMMISSION ( RRC) meets tomorrow Tuesday to discuss production cuts. Based on recent discussions we are doubtful a serious official cut will come out of the US as most of the large producers like Exxon and Chevron have come against it.

6- IDEAL PRICE- we continue to think that $40 WTI is where the Saudis and the Russians want to oil price which is enough to kill US Shale's economics while helping the local budgets of each closer to balance.



Oil & Gas IN Fact Living on the Edge: Historic Deal With a Lot of Unknowns Randy Ollenberger • Oil & Gas (403) 515-1502 Phillip Jungwirth, CFA • Oil & Gas (303) 436-1127 Bottom Line: OPEC+ has reached an agreement to reduce production by 9.7 million b/d in May and June and roughly six million over the balance of the year. The G20 group acknowledged the need to stabilize oil markets and has reportedly agreed to reduce production by 3.7 million b/d. The OPEC+ cut (if adhered to) plus expected shut-in production due to low oil prices could be just enough to keep inventories from breaching capacity. We expect crude oil prices to trade in a $20-30/bbl range through May as the market waits to see if the production cuts materialize and are large enough to stave off disaster. Key Points OPEC+ capitulates. OPEC and its non-OPEC partners have agreed to reduce production by 9.7 million b/d in May and June and by roughly six million b/d for the remainder of the year. The baseline for the determination of production levels is October 2018 except for Saudi Arabia and Russia, which have baselines of 11 million b/d. The group will meet again on June 10 to determine if additional action is required. No commitments but uneconomic shut-ins elsewhere. The broader G20 group did not explicitly commit to any reductions in supply but acknowledged the need to stabilize oil markets and has reportedly agreed to reduce supply by 3.7 million b/d through declines and shut-in of uneconomic production. The OPEC+ cuts are not contingent on commitments from the U.S. and others to reduce supply. We anticipate a drop in non-OPEC production of 1.8 million b/d in the second quarter and growing over the balance of the year due to the drop in activity levels. Level of demand destruction unknown. We believe that global oil demand could be down more than 17 million b/d year over year in the second quarter to roughly 82 million b/d, which would represent the lowest level of demand since 2004. Taking the OPEC+ cuts into consideration we anticipate a year-over-year decline in production of 7 million to 92.8 million b/d, which implies a build of approximately 984 million barrels. We estimate remaining available global storage capacity (including floating storage) is roughly 1.2 billion barrels. While this means there could be adequate storage room there is not much room for error. Pricing in uncertainty. We expect crude oil prices to remain relatively weak through April and May as the market assesses the risk that the level of demand destruction could be higher than expected, leading to the possibility that there is not enough storage available. We also expect regional dislocations where storage fills up leading to wider price differentials in some markets. View Comment >

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