As talks near, OPEC and Russia stake out positions


It’s that time of year when an upcoming OPEC meeting becomes the central focus of the oil market.

Will OPEC and its coalition partners, led by Russia, decide to extend an agreement to suppress production into the second half of this year?

The meeting, originally scheduled to begin June 25, might be pushed back to early July, at the request of Russia.

The jawboning has already begun.

Saudi energy minister Khalid Al Falih says the situation is clear: crude inventories remain higher-than-normal, justifying the need to keep production cuts in place, he says.

His argument is bolstered by US crude inventories, which just reached 485.47 million barrels, the most since July 2017.

But that isn’t the whole picture, a point we’ve raised before. Back in March, we fact-checked Al-Falih’s rhetoric on inventories against our global crude inventory data.

We recently highlighted the situation unfolding in Europe where the Druzhba Pipeline outage has caused inventories to fall.

Another significant development (outside the US) is taking place in China where crude inventories have turned lower the last few weeks.

This blog discussed the builds that began in April driven by record-high crude imports, including from Iran before the waivers issued by Washington expired in early May.

Chinese crude inventories kept increasing until the week ending May 16, but since then have declined. For example, stocks fell three straight weeks at Lanshan, Maoming and Tianjin.


Source: Ursa

What’s behind the turnaround? The likely answer is imports. China’s crude imports fell 11% in May on a barrel per day-basis to 9.47 million bpd, according to Reuters calculations of government data.

One component of the month-on-month decline was imports from Iran, as waivers expired and pressure mounted on China to cut off flows or else face US sanctions.

Whether US efforts to drive Iranian exports to zero succeed has implications for the global supply-demand balance.

It could even tilt the balance, yet knowing the answer won’t be easy.

The prevalence of Iranian tankers turning off Automatic Information System (AIS) transponders and going “dark” complicates the calculation of the country’s actual level of exports.

Back in November, shortly after President Trump reimposed US sanctions (incl. waivers), we discussed techniques that can be used to track “dark” ships with a pair of Ursa engineers, which you can read here.

More recently, Ursa announced a partnership with HawkEye 360, which operates a commercial satellite constellation that it uses to identify and geolocate sources of radio frequencies.

The collaboration will fuse synthetic aperture radar (SAR) with radio frequency data to create new products, starting with maritime monitoring.


One place under much scrutiny is Kharg Island in the Persian Gulf, home to Iran’s main crude export terminal.

A notable trend has emerged at Kharg Island that began around the time when the White House announced US waivers wouldn’t be renewed.

Crude inventories have been increasing, suggesting exports have declined at a faster pace than production has fallen.

As a percentage of capacity, Kharg Island’s storage tanks have increased from 47% (week ending April 25) to 81% (week ending June 13), according to our measurements.

Here’s a look at Kharg’s crude stocks in terms of barrels:

Source: Ursa

At some point soon, there won’t be available storage capacity left, forcing Iranian oil officials to either turn down production or find new outlets for supplies, whether that’s customers willing to skirt US sanctions or storage outside Iran (e.g. bonded, floating).

This sense of uncertainty around Iranian production — along with precarious supply outlooks in Libya, Venezuela, Nigeria & Russia (i.e. Druzhba Pipeline) —  is certainly in the back of everyone’s mind heading into the OPEC+ meeting

Is it wise to lock in another round of production cuts against this backdrop?

Russian President Vladimir Putin implied he’s having second thoughts, saying last week that he could live with lower oil prices.

Those comments have set the stage for what could be a tough meeting between OPEC members and Russia.

What do you think will happen at the meeting in Vienna?.




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