OPEC and Thanksgiving
OPEC is a real turkey and knows how to mess up Thanksgiving. In fact, it was Thanksgiving 2 years ago when OPEC failed to secure a production cut and the Saudis declared a production war that goes on until this day.
Now Thanksgiving eve in the US and once again the markets are fretting about whether OPEC can firm up the Algiers agreement of limiting output to 32.5 million to 33 million barrels a day and deciding who cuts how much and whether Iraq and Iran must participate. The OPEC “technical meeting” in Vienna was supposed answer that question but instead OPEC punted until the official OPEC meeting on November 30th.
The market broke after the talks broke down. It was nowhere the type of break we had at the last technical meeting of the OPEC cartel. Even though the same issues of Iraq’s and Iran’s perception in cuts still lingers, it seems that there is a sense that they are close to having an agreement. The reason that they are optimistic is that both Iraq and Iran seem to be willing to cooperate in some way even if it is unclear as to how and how much.
Even analysts that had steadfastly doubted that OPEC could reach an agreement are changing that view but we all know that when it comes to the cartel, it is not a done deal until it is a done deal.
Nomura securities are telling their clients that there is a 70% chance of a large 1.0 million barrel of day cut by the cartel. Goldman Sachs also raised their price forecast basically on the increasing perception that OPEC will get the deal done.
The deal is critical for many members. Venezuela, for example, missed a bond payment. Bloomberg News reported that Petroleos de Venezuela SA missed coupon payments due on its bonds, per JPMorgan Chase & Co (NYSE:JPM), just a month after it persuaded investors to agree to a debt swap to help it avoid default.
PDVSA has activated a 30-day grace period after not meeting the full coupon payments on its 2021, 2024 and 2035 bonds that were due last week. About $400 million was due on those bonds, while PDVSA did pay $135 million due on its 2026 debt last week, JPMorgan’s Javier Zorille writes, citing information from the paying agent on the bonds.
The Wall Street Journal reported that on Tuesday, PDVSA bonds maturing in 2035 fell 4.7% to 44.3 cents on dollar of par value, down from 46.5 cents on Monday. The bond currently yields 22.7%. Bond prices fall when yields rise. The 2024 bonds traded 2.6% lower to 37 cents.
The company last week missed $404 million in coupon payments on a series of bonds, per banks and agencies handling the payments. That essentially left the company with a 30-day grace period to make the payments in order to avert default.
In the meantime, oil saw some support from the American Petroleum Institute (API) report that showed that oil supply fell 1.28 million barrels. The excitement about the number was offset a bit by the fact that gasoline supply increased by 2.68 million barrels that Bloomberg News says is the largest weekly increase from February.
The numbers in conjunction seems to suggest that refiners are coming out of maintenance and are expecting strong gasoline demand to continue. Distillates on the other hand fell by 350,000 barrels.Data on petroleum stocks from the Energy Information Admintation is released on Wednesday.
We will also get data on natural gas report today which could show the first withdrawal of the season. Of course we know that natural gas seasons have changed as we did see a historic draw in inventory last summer. Still the first seasonal draw in the market is one of the reasons we saw natural gas settle at 3 week highs. With winter storms starting to fester, it is possible we could see the storage withdrawals surprise to the bullish side. Use market weakness to put on long term bullish strategies.