"Those countries which have openly supported this
approach are producing around 75 percent out of global (oil) export volumes. My
point is that, in practice, this is enough to agree.” These were the words of
Russian Energy Minister, Alexander Novak, on February 21, five days after
Russia and Saudi Arabia had agreed to freeze output at the January levels. That
time the Russian oil minister also foresaw the production deal to be
implemented by March 1.
A lot has changed since then. The meeting is now expected to
take place in less than two weeks on April 17. Oil prices rallied more than
$10/bbl on bullish expectations of the deal but they are now $4-$5/bbl below
the highs achieved around two weeks ago. Russia’s oil output that was at 10.46
mbpd in January rose to 10.88 mbpd the following month and to a record high of
10.91 mbpd in March, according to official Russian data. Such a rise is bad
news for those who expect a bullish outcome from the meeting.
The Saudi stance is equally disheartening. The Kingdom’s oil
minister, Ali al-Naimi, made it clear in his speech during the CERA week in
Houston on February 24 that any freeze would be the beginning of a process and
current high inventories will decline in “due time”. He also made it clear the
production cut will not happen because “not many countries are going to
deliver. Even if they say that they will cut production they will not do it.
There is no sense in wasting our time seeking production cuts. They will not
happen.”
As pointed out in previous reports a production freeze will
not result in re-balancing in 2016 and every quarter of this year will probably
see global stock levels rising further. To make matters worse the Saudi crown
prince said in a Bloomberg interview on Friday that his country would only join
any freeze agreement if Iran and other major oil producers do so. He also
assured us that the kingdom can withstand prolonged low oil prices making any
credible deal less likely. Saudi oil production was at 10.128 mbpd in January
and 10.142 mbpd a month later, secondary sources estimate. By the country’s own
admission these figures stood at 10.230 mbpd and 10.220 mbpd respectively. The
latest Reuters survey puts Saudi March oil output at 10.180 mbpd, down from
10.200 mbpd in February.
And what about Iran? If their participation in the deal is a
Saudi pre-condition for freezing production then the outlook for a possible
agreement is very gloomy. The country’s production rose from 2.944 mbpd to 3.132
mbpd from January to February (secondary sources) or from 3.370 mbpd to 3.385
mbpd (own admission). Iran’s March production level increased by a further
230,000 bpd, analysts surveyed by Reuters estimate. The rhetoric also suggests
that the Persian Gulf country will want special treatment in any deal if they
attend. The country’s oil minister called the co-ordinated effort to freeze
production “laughable” as it would not allow Iran to regain market share, the
main target of the country after sanctions were lifted in January.
The above sums up the approach and thoughts of the three
most important oil producing nations to the deal. If we draw a line and add up
the stance of these countries we have to conclude that a meaningful deal is
only a distant possibility. It seems that the market now shares this view
following Friday’s Bloomberg interview with the Saudi crown prince. The
consequence of the Saudi approach was that most of the weekly loss on Brent
(-$2.36/bbl) took place on that day ($-1.66/bbl). WTI lost $1.55/bbl on Friday
and $2.67/bbl on the week. The same figures are -538 points and -753 points on
Heating Oil and -451 points and -930 points on RBOB.
WTI speculators turn cautious
It is very probable that WTI money managers also subscribe
to the above point of view as far as the Doha meeting is concerned. After five
consecutive weeks of increase in net speculative length (NSL) from a low of
55,000 lots in mid-February to 215,000 contracts two weeks ago, last week they
thought it was time to readjust positions and cut their NSL by 16,000 contracts
to back below 200,000 lots. Interestingly, it was not the bulls that cut their
positions as they only reduced their long exposure by 2,682 lots but rather
bears who added to their gross short positions (13,210 contracts).
Our technical colleague would also agree with us that the
sentiment is turning. He sees rallies to moving average resistances as selling
opportunities his advice is not to be long. Important supports below which it
is recommended to sell as well are the 100-day moving average at 35.75 on WTI
and the 37.83 correction point support on Brent.
Last week not even the major stock markets or the dollar
were able to provide support for the oil contracts. The MSCI World Equity index
and the major US stock indices all settled higher whilst the dollar, impacted
by the dovish Fed chair, weakened. It seems that oil has started to go its own
way and this path is leading downhill.
39-Baosteel expects higher output in 2016 as Zhanjiang base
comes on stream
Image Source: steelmintGlobal Times reported that China's
top listed steelmaker Baoshan Iron and Steel Co, also known as Baosteel,
expects its total output to rise about 20 percent in 2016, even as China moves
to slash a capacity glut amid a rise in anti-dumping complaints. Baosteel
produced 22.6 million tons of crude steel in 2015 and is likely to produce 27.1
million tonne is 2016
Board secretary Mr Zhu Kebing said “As a result of the completion of main
production lines at the Zhanjiang project in 2016, the scale of the company's
output will show an increase.”
He said Baosteel's huge Zhanjiang steel production base, with an annual
capacity of about 9 million tonnes, will go into operation later this year.”
Baosteel reported an 82.5 percent year-on-year slump in 2015 net profits to
1.01 billion yuan ($156.7 million).
Source : steelguru