Oil: OPEC/Russia To Adjust Oil Production Cuts

For a few days, Brent Crude was trading over $80. Then news hit that Saudi Arabia and Russia were in discussions about lifting the production cuts. Brent prices reversed, falling to the $75 range.

CNN Money states:

Speaking during a panel discussion hosted by CNNMoney's Emerging Markets Editor John Defterios, Saudi energy minister Khalid Al-Falih said he was engaged in intensive discussions with Russia and other OPEC officials about how to balance the oil market . . . "Whether it's a million barrels [or] more or less, we think we'll have to wait until June before making that announcement," he said. Production increases would be gradual to avoid delivering a shock to the market, Al-Falih added.

As mentioned in the article, we have to remember that production cuts of 1.8 million were put into place in 2017 after oil prices fell to $26. The supply cuts were supposed to continue until the end of 2018, but then everything is subject to change. The two big impacts that are likely changing the thought process is: a.) sanctions on Iran and b.) the continued decline in Venezuelan oil production.

To me, the key statement by Saudi energy minister Khalid Al-Falih is the world "gradual."

Bloomberg added some additional facts:

“The market is now pricing in the possibility that OPEC is going to raise production,” Phil Flynn, an analyst at Price Futures Group in Chicago, said by phone. An 800,000 to 1 million barrel a day increase would “barely” offset the expected loss from Iran and Venezuela but “the market is taking that as a big increase.” . . . Saudi Arabia and Russia’s potential policy shift doesn’t materially change Goldman Sachs Group Inc.’s bullish oil outlook, the bank’s analysts including Damien Courvalin said, reiterating a forecast of Brent at $82.50 in the third quarter.

It should be noted that back in 2017, Goldman Sachs believed 2018 prices would be in the $60 range.

I previously noted that oil inventories were expected to contract by 1.3 million barrels a day in the second half of the year. At that time, the oil glut (oil supplies above the five year average) was 43 million barrels, which I'm guessing at this point in time has dropped. So Phil Flynn has a point: increasing production by 800,000 to 1 million barrels a day would just slowdown the decline in the oil supply. It wouldn't cause the oil inventory to increase. In fact, as Khalid Al-Falih states, the production increase would be gradual. It is possible that they'd just increase production somewhat inline with demand increases and any continued decline in Venezuelan/Iran output, allowing the 1.3 million decline in inventory to continue.

Follow-Up: Saad Hariri (Lebanon)

Back in December 2017, I wrote a couple blog posts about Lebanon's Prime Minister Saad Hariri. At the time, he resigned from his position while in Saudi Arabia. For awhile, he was potentially under house arrest. With international negotiations going on, Hariri was finally allowed to return to Lebanon.

So I figured it might be interesting to take a look at what is going on with Saad Hariri, around 6 months after his resignation while in Saudi Arabia.

Via Al Jazeera, he is going to serve his third term as Prime Minister:

Hariri's party lost a sizeable chunk of its power in May 6 vote, but remains the biggest Sunni-led party with 20 seats . . . Hariri was put forward for the job by 111 of 128 members of Lebanon's parliament in consultations with [President Michel] Aoun held on Thursday . . . Hezbollah and its allies made the most significant gains by winning 70 seats.

So even if Saudi Arabia wanted him out, it looks like Hariri is hanging onto power. It should also be that Hezbollah is gaining more power. We should remember that Hezbollah is in Syria and has recently targeted by Israel.

The Economist happens to mention one key issue issue:

Meanwhile popular anger over a lack of basic services has grown.

The question always has to be: at what point do citizens just get fed up and start mass protests.

Is there any bad blood between Hariri and Saudi Arabia? Via this article, maybe not:

Arab News:

The Saudi Arabian Charge d’Affaires in Lebanon, Walid bin Abdullah Bukhari, held a Ramadan Iftar banquet at his residence in Al-Birzeh on Saturday evening in honor of Lebanese Prime Minister Saad Hariri in presence of Adviser at the Saudi Royal Court Nizar Al-Alula.

I had to check the date, the article is dated May 20th, 2018.

Tesla: Fake News, Consumer Report, Model 3 Price

Tesla: Fake News

Elon Musk went off against the media in a way that has to remind some of President Trump.

On May 23rd, he tweeted the various:

The holier-than-thou hypocrisy of big media companies who lay claim to the truth, but publish only enough to sugarcoat the lie, is why the public no longer respects them.

Problem is journos are under constant pressure to get max clicks & earn advertising dollars or get fired. Tricky situation, as Tesla doesn’t advertise, but fossil fuel companies & gas/diesel car companies are among world’s biggest advertisers.

Governor Jerry Brown to Cities: Pensions, That's Your Problem!

Via Bloomberg, it is reported that Governor Jerry Brown told cities via his budget:

"A lot of cities signed up for pensions they can’t afford," the term-limited governor said during a budget briefing in Sacramento. "I don’t think the state is in a position, as far as I can see, to step in the shoes of mayors and supervisors. They’re going to have to handle that themselves." 

Cities looking for more relief may find it in the courts, Brown suggested. The governor in January predicted that legal rulings in pending cases may make it easier to cut pension benefits for existing workers.

Venezuela vs ConocoPhillips: Oil

Venezuela is having unwanted problems hitting their oil industry. Via Yahoo, we learn that ConocoPhillips was just awards $2 billion for what happened in 2007 when the Venezuelan government took over 2 of ConocoPhillips' units. Via the article, ConocoPhillips took immediate action:

A ConocoPhillips source said the company was enforcing the award at four locations in the Caribbean, without specifying the facilities affected. Press reports said the affected assets are in Curacao, Bonaire and Saint Eustace.

Reuters explains why these three facilities are important to Venezuela:

The three play key roles in processing, storing and blending PDVSA’s oil for export . . . Last year, PDVSA’s shipments from Bonaire and St Eustatius terminals accounted for about 10 percent of its total exports, according to internal figures from the state-run company . . . From its largest Caribbean operations in Curacao, PDVSA shipped 14 percent of its exports last year . . .  

The 14% is likely over-stated as from reading the article the 14% figure is part of a largely grouping of facilities. What we can say is that ConocoPhillips sized assets that impact Venezuela's exports by anywhere between 10% to 24%.

AT&T: Hiring Michael Cohen

On October 22nd, 2016, AT&T agreed to buy Time Warner Inc.

Then candidate Donald Trump attacked the deal. At the time, he said, "As an example of the power structure I'm fighting, AT&T is buying Time Warner and thus CNN, a deal we will not approve in my administration because it's too much concentration of power in the hands of too few."

As we know, Donald Trump won the election and became President Donald Trump.

Recently, news popped up about AT&T paying President Trump's personal lawyer, Michael Cohen, for consulting advice.

Middle East: Some Countries Still Need Higher Oil Prices

One thing that recently caught my attention is the fact that tiny oil state of Bahrain needs oil prices to reach $113 in order to break-even. Via Business Insider:

Bahrain's gross government debt could reach 102 percent in 2019 from 94.9 percent this year as the smallest oil producer in the Gulf struggles with one of the highest breakeven crude oil price levels globally, the International Monetary Fund said in the May edition of its Regional Economic Outlook for the Middle East and North Africa.

Though Bahrain doesn't appear to be suffering through an economic collapse like Venezuela, it is still interesting how these oil countries aren't doing well even with oil prices at around $70. Here's a country where oil prices have recovered significantly since the lows, but their debt ratios are still increasing. In this case, from 94.9% to 102%.

Telsa: Q1 2018 Conference Call

A big event that happened last week was the Tesla conference call. Chief Executive Elon Musk got irritated with questions from two analysts. He cut things off with a, "Sorry, these questions are so dry. They're killing me." He then moved to questions from a YouTuber.

Via The LA Times the first question that irritated Elon Musk came from Toni Sacconaghi of Sanford C. Berstein who asked about capital requirements. The next question came from Joe Spak of RBC Capital Markets asking about what percentage of those who reserved a Model 3 went ahead with the purchase.

Musk later defended his response to the analysts. ABC News reports that on Friday (May 4):

On Twitter he [Elon Musk] said the questions came from "analysts who represent a short seller thesis, not investors." That is, he felt the analysts who questioned him were either betting against Tesla's stock, a claim he didn't present evidence for, or were only thinking about the short term while other investors want Tesla to succeed.

Pensions and Teachers

The San Francisco Chronicle had an interesting take on the pension crisis hitting teachers. They compared it to Game of Thrones. I'm assuming this was an opinion piece versus a news article. The article points out that schools are having budget problems even when the state is not having similar issues. This is an issue that isn't just hurting teachers, but also cities such as Santa Cruz. Anyways, here's a perfect quote about pensions (and healthcare) and the impact it is having:

In 2013, California state leaders attempted to address the shortfall by increasing payments from districts into the pension fund to $1,600 per pupil in 2023-24 from $500. This increase will only pay for part of the state pension obligation. Billions of dollars more will come directly from state coffers and never reach education budgets. Just when you think it couldn’t get worse, California has more than $92 billion in unfunded health care liabilities. By 2030, Los Angeles Unified School District, serving more than a half-million students, is projected to spend half its budget on retiree pension and health care costs.

Half, do you see that? Half of the budget by 2030 for LAUSD will go to retiree pensions and health care costs. That's got to be a joke.

Part 3: Khalifa Haftar Returns to Libya

For two weeks, there was speculation about the health of Khalifa Hafter, leader of the Libyan National Army (LNA). He was rushed off to a Paris hospital after a trip to Jordan. During a period of two weeks, there was no real evidence that he was still alive other than via his spokesperson -- which how much can you trust a PR person?

Yet on April 27th he made a triumphant return to Libya.


The Economist in their April 28 print edition wrote that Khalifa Haftar was still in the hospital. Unknown to them at time of print was that he was just about to leave the hospital. Though the article is dated, there is an interesting quote in the article:

Benghazi is in ruins. He rules the rubble like an authoritarian. The LNA has looted property from displaced families and tortured critics. And his growing power comes at the expense of the UN-backed government in Tripoli, the capital at the western end of the country. The UN wants Libya to hold elections this year. General Haftar has already hinted that he may not accept the results.