Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: This week, oil executives and officials from some of the
Speaker 2: world's largest oil producers countries like Saudi Arabia and Nigeria
Speaker 2: are gathering in Vienna, where OPAK, the Organization of the
Speaker 2: Petroleum Exporting Countries, is headquartered, and the purpose.
Speaker 1: Is to bring together is some of the biggest players
Speaker 1: in the space.
Speaker 2: Bloomberg's Germani Brassecci is in Vienna covering Ope's gathering, and
Speaker 2: given what's been happening recently, there is a lot for
Speaker 2: the group to discuss.
Speaker 1: Remember, we are coming off the most volatile period for
Speaker 1: oil in the last couple of years.
Speaker 2: We're coming on the air with breaking news. Israel has
Speaker 2: just launched air strikes into Iran.
Speaker 3: Massive precision strikes are on the three key nuclear facilities
Speaker 3: in the Iranian regime.
Speaker 1: After that twelve day war between Iran and Israel, we
Speaker 1: saw massive geopolitical premium get priced into the oil curve,
Speaker 1: and here we are pretty much all of that geopolitical
Speaker 1: premium was wiped out. Coming on the heels of another
Speaker 1: big OPECH plus decision.
Speaker 2: OPEK plus, which includes even more oil producing countries, made
Speaker 2: a surprise move over the weekend, it announced plans to
Speaker 2: boost oil production by more than half a million barrels
Speaker 2: a day, a big production increase at a time when
Speaker 2: investors are worried about oversupply. Now the world's largest oil
Speaker 2: producers are at a crossroads, and what happens next could
Speaker 2: ripple through the global economy. I'm David Gerret and this
Speaker 2: is the big take from Bloomberg News today. On the show,
Speaker 2: what OPEC Plus's production surge says about the influence it
Speaker 2: has on oil markets. Today, we look at what motivated
Speaker 2: the alliance's latest move, what it means for markets, and
Speaker 2: who actually calls the shots in the multi trillion dollar
Speaker 2: oil industry. The Organization of the Petroleum Exporting Countries is
Speaker 2: a coalition that dates back to the nineteen sixties. At first,
Speaker 2: its membership consisted mostly of Gulf states like Iran, Iraq
Speaker 2: and Saudi Arabia, but over the years its ranks have
Speaker 2: expanded to include countries like Ecuador, Indonesia and Nigeria, and
Speaker 2: about a decade ago, an alliance called OPEK plus formed,
Speaker 2: which includes an additional ten oil producers, including Russia and Kazakhstan.
Speaker 1: The purpose is to coordinate oil production policy around the
Speaker 1: world to keep prices stable and to ensure that you're
Speaker 1: both maximizing potential revenue for producers but at the same
Speaker 1: time keeping prices affordable for consumers.
Speaker 2: For years, OPEK was the major player in the global
Speaker 2: oil market, but it doesn't have as much influence as
Speaker 2: it used to. The United States has become a major
Speaker 2: player after it ramped up the extraction of shale oil
Speaker 2: through a process known as fracking. The US is now
Speaker 2: the largest oil producer in the world, and notably, it
Speaker 2: is not a member of OPEC or o PECK plus.
Speaker 1: So as it stands today, OPEK plus their decisions still
Speaker 1: matter hugely, but of course they're not the only game
Speaker 1: in town.
Speaker 2: Still, what these countries decide to do when it comes
Speaker 2: to how much oil they produce can send shockwaves through
Speaker 2: the global economy. That happened back in twenty twenty three
Speaker 2: when OPEC plus decided to cut production by an additional
Speaker 2: one million barrels a day. The cuts were meant to
Speaker 2: rebalance the global oil supply. Crude prices had fallen and
Speaker 2: analysts were predicting a glut ahead, and.
Speaker 1: Therefore they took the decision to withhold barrels ie, to
Speaker 1: withhold production from the markets, and so called these voluntary
Speaker 1: cuts because then a group of eight producers started withholding
Speaker 1: production from the markets per and agreed schedule, and the
Speaker 1: whole purpose of that was to introduce again some price stability.
Speaker 1: Initially those cuts were meant to be around for say
Speaker 1: six months or so, they kept getting extended, but then
Speaker 1: at the beginning of this year, so around on spring
Speaker 1: of twenty twenty five, they announced that they were going
Speaker 1: to start slowly unwinding the cuts that were introduced in
Speaker 1: twenty twenty three.
Speaker 2: In other words, OPEC plus was shifting course and boosting
Speaker 2: production again.
Speaker 1: The plan was to do it gradually, bringing back slowly,
Speaker 1: slowly a little bit more than one hundred and thirty
Speaker 1: thousand barrels a day. But what has happened in the
Speaker 1: last four months, they've accelerated the putback. So from May
Speaker 1: June July they surprised the market by increasing monthly production
Speaker 1: by more than four hundred thousand barls per day.
Speaker 2: That's three times the volume initially scheduled in those first
Speaker 2: three months. Jamana says there are a number of reasons
Speaker 2: for the recent surgeon production, among them a desire by
Speaker 2: opek's most powerful member, Saudi Arabia, to punish members like
Speaker 2: Kazakhstan and Iraq which exceeded their quotas. Then there's the
Speaker 2: growing influence of non OPEC producers.
Speaker 1: You were seeing a huge pickup in supply from the
Speaker 1: likes of Canada, Brazil, Guyana, so their non OPEC countries
Speaker 1: bringing their extra production to the market, and that's obviously
Speaker 1: got to be a concern for OPEC from a market
Speaker 1: share perspective. So when analysts were analyzing this decision and
Speaker 1: trying to, you know, put together the rationale for why
Speaker 1: OPEC plus decided to accelerate the unwines of these vluntry cuts,
Speaker 1: one of the clear rationals was because they felt that
Speaker 1: they were one losing market share. Two of course they
Speaker 1: felt that the market could handle it. And then three
Speaker 1: and this probably isn't something that they would say explicitly,
Speaker 1: but of course you do have a president in the
Speaker 1: White House who repeatedly talks about his desire to see
Speaker 1: lower oil prices. And I'm also going to ask Saudi
Speaker 1: Arabia and OPEK to bring down the cost of oil.
Speaker 2: You got to bring it down.
Speaker 1: And perhaps they sense an opportunity both politically and economically
Speaker 1: to put more barrels back into the market, but also
Speaker 1: appease the United States.
Speaker 2: Let me stick with that for a second. So as
Speaker 2: you say, it's no secret that President Trump wants low
Speaker 2: oil price and he's been pressuring OPEK to slash prices
Speaker 2: for months now. He met with OPEC leadership on his
Speaker 2: recent tour of the Persian Gulf. To what degree was
Speaker 2: this a direct response to that? Of course, the US
Speaker 2: not a party of OPEC or OPEC. Plus, how much
Speaker 2: influence does does the US have and how much is
Speaker 2: this attributable to what the President's been saying.
Speaker 1: They will not tell you directly, but I mean, for
Speaker 1: sure they're going to be motivated and influenced by the
Speaker 1: US and by a very vocal president sitting in the
Speaker 1: White House. But then also don't forget that if prices
Speaker 1: go too low, then that also backfires on some of
Speaker 1: the drillers and the US producers as well, because already,
Speaker 1: if you look at say the riccounts, the active oil
Speaker 1: riccounts in the US this year, they're back down to
Speaker 1: low's not seen since September twenty twenty one. And why
Speaker 1: is that the case? Because oil prices are lower and
Speaker 1: so if you think about it from OPI plus's perspective,
Speaker 1: maybe they're willing to tolerate lower prices if that also
Speaker 1: means that they're building market share and they are reducing
Speaker 1: the ability of some of their big competitors in the US,
Speaker 1: these shale drillers to also bring production to the market.
Speaker 2: So opek plus seems willing to deal with lower oil prices.
Speaker 2: And this weekend's decision confirms that their members gathered on
Speaker 2: a video conference call and it didn't take long for
Speaker 2: them to announce that in August they will add five
Speaker 2: hundred and forty eight thousand barrels of oil to the
Speaker 2: market every day.
Speaker 1: It was a ten minute meeting, so it was fairly quick.
Speaker 1: Every one of those members who were part of the
Speaker 1: voluntary cutting group were in unanimous support of this decision.
Speaker 1: There really seems to be a desire to get these
Speaker 1: barrels back to the market now. Their justification at the
Speaker 1: time when they put out the statement on Saturday, they
Speaker 1: said that the market fundamentals support it. They spoke about
Speaker 1: lower inventory. It seems as though opek plus the voluntary
Speaker 1: cutters did see a window of opportunity here to bring
Speaker 1: back those extra bowels to the market without upsetting oil
Speaker 1: prices too much. And actually, if you look at the
Speaker 1: price reaction, say in Brent on Monday, it barely dipped
Speaker 1: to we're down about half a percent and actually were
Speaker 1: higher on the week now since they made this decision,
Speaker 1: which does tell you that perhaps a certain extent the
Speaker 1: market was ready to absorb these extra bellels. But then,
Speaker 1: of course the question becomes, this is now what happens
Speaker 1: in a couple of months time once the seasonal demand
Speaker 1: drivers are out of the way.
Speaker 2: That OPEC plus news broke on Saturday, and on Sunday,
Speaker 2: global markets were surprised again by another move, this one
Speaker 2: by opek's most powerful member and the world's second largest
Speaker 2: oil producing nation, Saudi Arabia. We dig into that after
Speaker 2: the break on Sunday, a day after OPEC plus decided
Speaker 2: to boost production by more than half a million barrels
Speaker 2: a day in August, Saudi Arabia's state owned oil company,
Speaker 2: Saudi Aramco, announced it would raise oil prices in Asia
Speaker 2: next month by more than expected. It would raise the
Speaker 2: price of its most popular crude oil by one dollar
Speaker 2: a barrel. Bloomberg'stremani Brassecci explains why that is so significant.
Speaker 1: That was a bit surprising and does actually reflect the
Speaker 1: fact that ARAMCO do see healthy demands coming from those
Speaker 1: parts of the world, and for Saudi Arabia their biggest
Speaker 1: buyers coming from the East and coming from Asia. That
Speaker 1: was actually quite notable. And I will tell you I've
Speaker 1: spoken recently to the aram COO CEO to Aminaser before
Speaker 1: the open plus decision, before the Iran is there a
Speaker 1: war even and he was saying that he actually does
Speaker 1: see the market as pretty balanced. They still see healthy
Speaker 1: signals coming through from Asia, despite the naysayers there and
Speaker 1: the fact that many in the industry seem to think
Speaker 1: that demand from China will be leveling off as there's
Speaker 1: been more of a push towards electric vehicles. But the
Speaker 1: signals that Iramko seem to be picking up are strong.
Speaker 1: Otherwise they would not have been able to push through
Speaker 1: those extra price hikes. So that is quite notable.
Speaker 2: I wonder if anything stood out to you from that
Speaker 2: conversation just about his perspective on the global oil market,
Speaker 2: his confidence, I suppose, and they're being buyers for oil
Speaker 2: going forward.
Speaker 1: One thing that I learned was he said that because
Speaker 1: they're sitting on a three million barrel's day of extra capacity,
Speaker 1: So spare capacity every one million provides a cushion for
Speaker 1: a ten dollars drop in the price of oil, which
Speaker 1: is quite notable from a revenue perspective.
Speaker 3: Other companies do not have that to push in any
Speaker 3: drop and prices. For us, we do have that spare
Speaker 3: capacity that is healthy strong.
Speaker 1: What he was trying to say is Saudi Arabia Aroundco
Speaker 1: can actually stomach slightly lower prices given how much spare
Speaker 1: capacity that they're sitting on, They'll just pump more, but
Speaker 1: at lower prices, so net net, from their perspective, it
Speaker 1: sort of adds up.
Speaker 3: Producers do not have that additional battles to put in
Speaker 3: the market. We do have that additional battles and it
Speaker 3: gives us strong benefit in terms of impact on our
Speaker 3: net income.
Speaker 2: My sense was that that Wall Street's expectation is there's
Speaker 2: going to be a surplus of oil here in the
Speaker 2: second half of this year. Maybe a dumb question, but
Speaker 2: where does Sadi Rabe, where did these other producers think
Speaker 2: that the market for this oil is going to be
Speaker 2: How confident are that they're going to be buyers for
Speaker 2: all of this oil that they're producing.
Speaker 1: As of now, they seem to be pretty confident, unclear
Speaker 1: how this is all going to pan out in a
Speaker 1: couple of months time. So this is a time of
Speaker 1: year where the seasonals do work in their favor. You
Speaker 1: have global refineries operating at very high intensity, but that's
Speaker 1: expected to subside by the end of the summer. You
Speaker 1: have high energy demands coming out of some of these
Speaker 1: Gulf nations because of the heat at this time of
Speaker 1: the year, you know, operating air conditioning units. You have
Speaker 1: high demand for transport fuel out of some of these
Speaker 1: western nations. So once the seasonals are out of the way,
Speaker 1: when you want to see what happens to demand. So
Speaker 1: question of whether also some of the macro uncertainties in
Speaker 1: the air, things related to terriffs, to global economy, to
Speaker 1: China demand, the incremental fiscal boosts that you're going to
Speaker 1: get from some of these big packages that being announced,
Speaker 1: whether all of that is going to move the needle
Speaker 1: on demand as well. Those are things that you want
Speaker 1: to think about. Let's say you get a nuclear deal
Speaker 1: between US and Iran, does that mean you get a
Speaker 1: reduction and sanctions? Does that mean that this mancher of
Speaker 1: maximum pressure will be released, and therefore Iranian oil, which
Speaker 1: by the way hasn't taken a big production hits, I
Speaker 1: should note, will be freer to be sold to all
Speaker 1: of these other willing buyers around the world as well.
Speaker 1: So these are questions that we just don't know. But
Speaker 1: you mentioned Wall Street being pretty bearish, and it's exactly
Speaker 1: because of that. The likes of Goldman, for example, see
Speaker 1: supply growing at four times the speed of demand over
Speaker 1: the next three to four quarters. And on the back
Speaker 1: of that, and the likes of JP Morgan City are
Speaker 1: pretty bearish on where the price of Brent gets too,
Speaker 1: and most of them have their forecast around sixty five
Speaker 1: sixty dollars by the end of this year.
Speaker 2: OPEC plus has its next meeting on August third. Jamana
Speaker 2: says she'll be watching for a few things, namely, will
Speaker 2: the group stay the course, will it effectively get oil
Speaker 2: production back to where it was before it imposed those
Speaker 2: cuts in twenty twenty three.
Speaker 1: The other thing to watch out for always compliance whether
Speaker 1: or not some of those big producers, the ones that
Speaker 1: have been over producing, we'll start cutting back ultimately for
Speaker 1: the cohesion of the group, though all of these different countries.
Speaker 1: These producers want to be producing as much as they
Speaker 1: possibly can with prices as high as they possibly can, right,
Speaker 1: and so this is the paradox for Opek. They're trying
Speaker 1: to keep prices stable, but they also want to grab
Speaker 1: on some market share. This is an environment where they
Speaker 1: have a lot more competition than they've ever had in history.
Speaker 2: This is the Big Take from Bloomberg News. I'm David Gura.
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Speaker 2: Thanks for listening. We'll be back tomorrow.