So that’s it then. All the storm and fury, the price gyrations, the leaks, the tweets, the media frenzy. It has all culminated in this – a very predictable cut in oil production from the OPEC/NOPEC/OPEC+/RUKSA whatchamacallit.

 

Phew right? I told all of you last week that something momentous and earth-moving was in the offing and I wasn’t wrong. Big things!

 

It was admittedly pretty exciting to watch from the safety of my chair here in Calgary, but I bet it was far more exciting to be standing around outside the OPEC building in what I understand was an unseasonably cold Vienna.

 

I know you are all waiting breathlessly to hear whether they cut enough or the language was right or whatever, but you aren’t going to get that here. Instead, you are going to get something so much better. True insight. The chance to see into the inner workings of one of the most mysterious organizations in the world outside of the Illuminati, the Freemasons and the Nickelback Fan Club of Greater Atlanta.

 

That’s right folks, once again I have managed to get my hands on a recording of the deliberations of the OPEC monstrosity. The words of wisdom from this most accomplished gathering of despots, tinpot dictators, sycophants and enablers are about to travel from my grubby little hands to your eager eyes.

 

As I did last year, I have enlisted the services of crack translators to lift the curtain on the discussions and where possible I have tried to describe some of what appeared to be happening, supplemented by an on the ground mystery source who I cannot reveal. Suffice it to say, it got pretty weird in there this year. Surreal almost. Perhaps there was a gas leak.

 

Speaking of gas leaks, let’s get right into it and push play.

 

 

<<Shuffling of chairs, muttering, quiet laughter>>

 

<<Gavel banging and call to order by Secretary General.>>

 

<<throat clearing>>

 

Sec Gen – Welcome everyone to day 2. I hope we can be more productive today than yesterday. First order of business, what is to be done with the Qatar situation?

 

Saudi Arabia – I’m sorry, don’t you mean the “Quitter” situation?

 

<<Muffled laughter>>

 

SG – OK, OK, calm down everyone. Saudi Arabia, we understand your position, but we need to hear from the full group.

 

Qatar – If I may interject…

 

Saudi Arabia – You most assuredly may not. Quitters have no rights.

 

<<Sound of sawing>>

 

Qatar – You’re kidding right? You expect me to be intimidated by you sawing the leg off a chair?

 

Saudi Arabia – What? No, no. Not at all? The legs were simply different lengths, just evening it out. <<crack>> Whoops. Now look what I’ve done. I accidentally killed the chair.

 

Qatar – Fine. I’m done for sure this time. Good luck with your oily thing – I am betting the house on gas.

 

Venezuela – Well I for one am glad that awkward moment is over with. Can we now move on to why Venezuela is not going to cut.

 

Saudi Arabia – Please, not this again, no one cares. Are you still even in OPEC? What is your production? 750,000 barrels a day? There are companies in landlocked Alberta that have higher production, even after curtailment. Aren’t you importing fuel? What is wrong with you people?

 

Venezuela – No one wants to work and we have no money, however we deserve some respect. We are a founding member of OPEC and a proud South American Bolivarian Democracy!

 

Saudi Arabia – Spare us your drama. You are a bankrupt kleptocacy that has squandered one of the great fortunes. A dictatorship in all but name built around a cult of personality with little regard for your regular citizens.

 

Vz – Umm, kettle, pot here. You’re black.

 

KSA – whatever, you are owned by Russia

 

Russia – Russia denies any involvement in Venezuela.

 

<<Gavel banging several times>>

 

Sec Gen – Gentlemen, order please. It is well past the scheduled start time and every minute the matter at hand – our cooperation agreement, cuts to production, how big and for how long – is delayed keeps us food, Twitter and the traditional post meeting show. OK, the agenda for today is simple. We affirm the cooperation agreement and agree on a target that we think the market will accept, determine how much cheating we can allow and play some cards while the media sweats it out. I will give everyone in the room (except Quitter) the opportunity to bore us and then we will open up the floor to discussion. Then if it’s alright with everyone else, Saudi Arabia and Russia will tell us what we are doing even though Russia isn’t actually in the room right now.  Venezuela, you may go first.

 

Vz – Well your eminence…

 

Sec Gen – Time’s up. Kuwait, you are next.

 

Vz – Wait a minute, I was talking. Our view is import…

 

Saudi Arabia – will no one rid me of this turbulent twit?

 

<<sound of scrambling, a chair tips over, there’s a yelp and then a noise that sounds like tape unwinding followed by more sawing, suitcases open and close – really it’s not very clear what is happening here but after a minute it all settles down>>

 

Russia – Venezuela will be no longer be a problem.

 

Kuwait – Oh my… Wait, why is Russia in the room? Aren’t they supposed to be coming later? They aren’t part of OPEC.

 

Russia – Russia is not in the room.

 

Saudi Arabia – Russia is not in the room

 

Kuwait – Wait, what? Oh never mind. Kuwait will do what Saudi Arabia tells us to do.

 

Saudi Arabia – Everyone will do what Saudi Arabia tells you to do.

 

<<This statement was followed by a number ayes and yesses in agreement>>

 

Russia – Except Russia. Even though we are not actually in the room.

 

Iran – The great nation of Iran wishes to advise that as a result of rash and harsh sanctions imposed on Iran by the Great Satan United States and the Royal Cheeto Trump that Iran will no longer accept any assignment of cuts.

 

Saudi Arabia – Okey dokey.

 

Iran – <<clearly annoyed>>OKEY DOKEY?!?!?! We will be heard! These sanctions are killing our productive capacity. These sanctions are clearly designed to win the favour of Saudi Arabia and unlike Venezuela we can actually produce more than pollution and million percent inflation. For Iran there is no “cut”, it is just what it is. And thanks for all the help, you spineless puppets.

 

Saudi Arabia – Enough grandstanding. You have the waivers that the paper tiger Trump gave you which is partly responsible for this mess in the first place since we increased production to offset your illusory cuts. But now we see you have disabled the GPS units in your tankers. You are still producing and shipping. For how long remains to be seen. But you are effectively part of the cut regime as these reductions finally take hold.

 

Iraq – Umm, Iraq agrees to temporary cuts, although truth be told, we don’t intend to honour the cuts and will cheat as much and as often as possible. Plus everyone seems to ignore us as a rule.

 

Algeria – And this is different how?

 

Saudi Arabia – Very well then, we are agreed. We will cut barrels from production. The agreement will be for another three months. Wait, I meant six, or was it nine? Does it really matter? We will all just do what we want anyway, right?

 

<<loud laughter>>

 

Saudi Arabia – Calm my friends, it will soon be time to call in the non-OPEC members of the cooperation agreement to tell them what they have to do, I mean, solicit their valued feedback. Russia, I assume you have these parties well in hand – I have heard Mexico is a bit tricky these days what with a new government, migrant caravans, USMCA – you name it. I have also heard that Mexico’s new president plans to roll back the privatization of their energy industry – just like a cut. Or like Venezuela. Honestly, does no one read history?? This too will not end well I fear. Russia, can you gather the others together so we can determine the number of barrels we are going to cut?

 

Russia – All will be delivered as already agreed. Russia was never here.

 

<<sound of door opening and closing>>

 

Sec Gen – We still haven’t heard from everyone. Libya and Nigeria were on the agenda as well.

 

UAE – Perhaps we should order food and spend some time eating so that the assembled media outside can get all agitated by how long this is taking and get all wound up in crazy conjecture and send the price of oil bouncing up and down. The volatility is fun – especially the effect it seems to have on those nasty non-OPEC crude blends, like that black hummus they dig up out of the frozen tundra in Canada.

 

<<Apparently it’s just not an OPEC meeting if they didn’t make fun of Canada>>

 

Sec Gen – Done. Servants, bring us lunch!

 

<<sound of door opening and closing>>

 

Russia – Did someone say lunch? I’m starving.

 

<<At this point the meeting devolved into a lot of small talk as lunch was brought in. There was a fair amount of rattling of plates and cutlery – this could have been a food fight, although no one declared one, so… After the lunch break, it sounded like a number of the delegates played a few hands of poker before all were called back to order>>

 

Sec Gen – OK, a few matters to discuss before we rubberstamp, I mean vote on, Saudi Arabia’s plan for OPEC. First up, Nigeria and Libya.

 

Saudi Arabia – The free ride is over for both of you. It is time to show your solidarity with the cooperation council. I, I mean we, will announce you will now participate in the cuts.

 

Libya – Umm, OK. What if there are more ISIS bombings at our facilities?

 

Saudi Arabia – That won’t be a problem. But you must be seen to be cutting. I assume you followed the rules of order and are now pumping record volumes?

 

Libya – Yes.

 

KSA – Then you my North African friend will be just fine. Remember, pump as high as you can, use up all spare capacity then seem magnanimous to the global economy as you cut. It’s page 39 in your OPEC manual.

 

Nigeria – I love OPEC.

 

Russia – I have question on US shale. Is shale threat?

 

Saudi Arabia – No.

 

Russia – Elaborate please. Is not US number one producer?

 

Saudi Arabia – Yes, as per our plans, the Americans are now the number one producer of oil in the world. And through the remarkable stroke of luck that is Donald Trmp’s colossal misunderstanding of the oil market prices have dropped just far enough that many shale companies are in the unenviable position of losing even more money than usual but still not low enough to discourage wanton drilling. It never ceases to amaze us that the US president at once brags about energy independence yet decries the high prices that have made this possible. But back to the point – US tight oil is an important contributor to global supply and the threat of massive expansion of shale acts as an artificial buffer to keep prices in check. But really, at up to $14 million per well and average production of 1000 barrels per day per well, the Americans will need to complete 1000 wells and spend up to $15 billion in a rising rate environment just to add 1 million barrels per day of production. I can add this by using this app on my phone.  We are not threatened by the Americans and neither should you be. In all reality we can’t control them so best to let them spend themselves into oblivion – their dependency on OPEC will come back. You must be patient.

 

Russia – Interesting. What about Canada?

 

<<at this point the background noise and muttering in the room stopped completely. It was alomost as if EF Hutton had walked into the room. It stayed completely silent for about 10 seconds until someone slowly started chuckling and was soon joined by others until it sounded like the entire room was rolling around on the floor laughing like schoolkids. Eventually, this died down and the room regained its composure.>>

 

Saudi Arabia – Phew, I needed that. We take ourselves far too seriously here at OPEC. Canada! (more laughter at this point) Oh Canada… (muffled chuckles). Will you ever figure it out and join the club?

 

Russia – Much as I thought. I will leave now. I was never here. Don’t forget about Venezuela in those three suitcases.

 

<<sound of door opening and closing>>

 

Sec Gen – OK. Now for the number?

 

Saudi Arabia – Very well. Here is what we will say. 6 month extension to next meeting. 1 million barrels of oil cut. Libya and Nigeria in, Iran out for obvious reasons. Option to review in June right?

 

Iran – Wait, what obvious reasons?

 

Saudi Arabia – Egads Iran! Your sanctions. Keep up.

 

Iran – Right. What about Trump tweets?

 

Saudi Arabia – Leave that to me.

 

Sec Gen – So, we are all agreed then. Can we turn the light on and let them know we’re done? It’s been more than 3 hours and we still have the NOPEC people to let in.

 

All – Yes, we agree.

 

<<Apparently at this point the delegates took a break as there was very little sound except for a distant rhythmic clicking. After about an hour of this the secret door opened again>>

 

Russia – OK, I’m back. Have you been practicing?

 

Saudi Arabia – Of course.

 

Russia – Excellent. I brought tap shoes.

 

Saudi Arabia – you are a weird bear Russia. But thank you for your support.

 

Russia – It is indeed my pleasure. It was a weird request, but I think the larger group of delegates will appreciate the gesture even if the media loses their minds. Until later.

 

Saudi Arabia – Venezuela?

 

Russia – Alive, stuffed in a suitcase. Back on a plane going home. We need their oil eventually.

 

<<The Russian left the room again at this point and shortly thereafter a number of delegates shuffled back in.>>

 

Sec Gen – Alright, call in the NOPECers!

 

<<noises of a few more individuals coming in. The sounds were muffled but it sure sounded like there was some clicking sounds>>

 

Saudi Arabia – wonderful to see all of you here, particularly you, Russia, it is always a pleasure to have your company.

 

Russia – Russia agrees. (clicking)

 

Saudi Arabia – that very nice of you.

 

Russia – No. Russia agrees to cuts. (clicking)

 

Kazakhstan – Wait, don’t we get a chance to speak on this, my government…

 

Russia – No. Russia agrees. No one else may speak. (more clicking)

 

Iraq – Well, this is awkward.

 

Saudi Arabia – Excellent, everyone is agreed. Let’s go tell the media what they already know. Does anyone have dinner plans? I’m starving.

 

<<Lots of handshaking and backslapping followed by footsteps shuffling out of the room>>

 

Saudi Arabia – So? That went as well as could be expected.

 

Russia – Yes, indeed. Russia is pleased. It is complicated playing our non-allied allies like fiddle to get what we need in the oil market, but it will be worth it in the long run. Letting the Americans spend all their money in tight oil while you wait them out by making all of OPEC hold up production is an excellent strategy. What price level are you really looking to achieve?

 

Saudi Arabia – Ideally $70, but we would settle for something in the $60-$70 range. We have made so much investment in downstream processing capability that the market is going to love us no matter what.

 

Russia – Excellent. So, are you ready to perform?

 

Saudi Arabia – Of course!

 

Russia – Excellent. I am hopeful that the rest of the world appreciates our Christmas gesture.

 

Saudi Arabia – Agreed. I hear it will be particularly well-received in Canada. Canada! Seriously, you had to bring up Canada?

 

Russia – Canada! Let’s run it through once more before we show the rest of them.

 

<<Sound of two men laughing. More clicking of tap shoes…>>

 

<<At this point some very familiar music starts and we are able to hear an excellent tap duet then a throat clears >>

 

Rus: I really can’t cut, (KSA – baby it’s oil outside)
Rus I’ve got to pump away (KSA – baby it’s oil outside)
The cuts they have been (glad to see you joining in)
So very nice (I’ll buy your rigs, you name the price)

 

My President will start to worry (don’t you fret there’s really no hurry)
Putin will be pacing the floor (listen to the Trumpster roar)
So really I’d better scurry (don’t you fret there’s really no hurry)
Maybe just a half barrel more, (a few more to make my IPO score)

 

The ‘mericans might think (baby, it’s bad out there)
Say, what’s in this drink (no tankers to be had out there)
I wish I knew how (your eyes are like starlight now)
To cut barrels well (I’ll buy your rig, your refineries as well)

I ought to say no, no, no (Mind if I show you my saw?)
At least I’m gonna say that I tried (What’s the sense in hurting my pride?)

<<together)

I really can’t cut (Baby don’t hold out)
Ah, but it’s oil outside

 

I’ve got to call Putin (oh, Russia, you’ll lose cash out there)
Say, lend me some cash (it’s up to your knees out there)
You’ve really been grand (thrill when you touch my hair)
Why don’t we see (how can you do this thing with me?)

There’s bound to be talk tomorrow (think of my IPO sorrow)
At least there will be plenty implied (if you didn’t and the market it died)

<<together>>

I really can’t cut (get over that hold out):

Ah, but it’s oil outside!!

 

Oh, baby, it’s oil!!!
Oh, baby, it’s oil outside!!!!!

 

Russia – So, how do you think that went?

 

KSA – It was fabulous. But come to think of it, maybe best not to perform that in front of Canadians. Their humour isn’t what it used to be. They’d probably ban that song.

 

Russia – I guess. You probably wouldn’t have much good humour either if you had no pipelines.

 

KSA – True. Why they don’t build pipelines is beyond me. Oh well, these cuts will help their pricing. And we didn’t have to do as much because they voluntarily cut those 300,000 barrels. Maybe they should join OPEC +.

 

Russia – I will call Kenney in the morning! No collusion!

 

So what did we learn from this recording?

 

Aside from learning how absurd OPEC meetings are? Lots actually.

 

First off, Saudi Arabia was, is and always will be the boss of OPEC. Second, all the decisions are based on self-interest. Third, even regional foes will put aside their differences for the mutual padding of the national accounts. Fourth, the Americans can bluster and harangue through tweets as much as they like – this is along game that lasts more than an election cycle. Fifth, the cooperation between Saudi Arabia and Russia is real. Finally, Venezuela may be a joke, but only Canada can make OPEC laugh.

 

Baby it’s oil outside.

 

Prices as at December 7, 2018, (November 30, 2018)

• The price of oil rose during the week on OPEC meeting prognostications and supply concerns.
  • Storage posted another increase
  • Production was flat
  • The rig count in the US was down
• Withdrawals from storage were higher than anticipated for natural gas. Price fell…

• WTI Crude: $52.61 ($50.72)
• Western Canada Select*: $30.96 ($20.72)
• AECO Spot *: $1.34 ($0.30)
• NYMEX Gas: $4.525 ($4.640)
• US/Canadian Dollar: $0.7509 ($0.7533)

*Due to overwhelming interest, we are now including prices for Canadian commodities, in case you weren’t angry enough.

Highlights

• As at November 30, 2018, US crude oil supplies were at 443.2 million barrels, a decrease of 7.3 million barrels from the previous week and 4.9 million barrels below last year.
  • The number of days oil supply in storage is 25.9 compared to 26.5 last year at this time.
  • Production was flat for the week at 11.700 million barrels per day. Production last year at the same time was 9.707 million barrels per day.
  • Imports fell from 8.162 million barrels to 7.219 million barrels per day compared to 7.202 million barrels per day last year.
  • Exports from the US rose from 2.442 million barrels per day to 3.203 million barrels per day last week compared to 1.358 million barrels per day a year ago
  • Canadian exports to the US were 3.472 million barrels a day, down from 3.513
  • Refinery inputs fell during the during the week at 17.195 million barrels per day
• As at November 30, 2018, the traditional end of injection season, US natural gas in storage was 2.991 billion cubic feet (Bcf), which is about 20% lower than the 5-year average and about 19% less than last year’s level, following an implied net withdrawal of 63 Bcf during the report week
  • Overall U.S. natural gas consumption was down 1%  during the report week as more normal weather returned
  • Production for the week was flat. Imports from Canada were down 1% from the week before. Exports to Mexico decreased 1%
  • Deliveries from LNG plants for the report week were 27.9 Bcf.
• As of November 30, 2018, the Canadian rig count was 184 (AB – 128; BC – 20; SK – 32; MB – 4; Other – 2. Rig count for the same period last year was 160.
• US Onshore Oil rig count at November 30, 2018 was at 877, down 10 from the week prior.
  • Peak rig count was October 10, 2014 at 1,609
• Natural gas rigs drilling in the United States were up 9 at 198.
  • Peak rig count before the downturn was November 11, 2014 at 356 (note the actual peak gas rig count was 1,606 on August 29, 2008)
• Offshore rig count was up 1 at 23
  • Offshore peak rig count at January 1, 2015 was 55
• US split of Oil vs Gas rigs is 80%/20%, in Canada the split is 65%/35%

Drillbits

• The GTovernment of Alberta announced they would curtail production by 325,000 barrels per day or 8.7% to narrow the differential, which snapped back by $10 on the announcement. No cuts to anything but capex budgets have been announced since. Curtailment is expected to start in January.
• Trump Watch: Trump announced a nothing-burger “truce” in the trade war which the market correctly interpreted into a 4% drop on the week in the Dow. Some no strings attached advice to the US president, who uses the stock market as a barometer for his success – lose the tariffs dude or you’ll lose the country.