Saudi Arabia predicts no opposition to cuts
Oil is above $50/bbl again as traders anticipate an OPEC agreement to continue price cuts. Crude oil closed the day at $53.75/bbl for Brent and $50.81/bbl WTI, continuing gains since the 17th.
It currently seems highly likely that OPEC will agree to extend production cuts, especially after an announcement by the Saudi Energy Minister today.
According to Reuters, Khalid al-Falih stated on Monday he did not expect any opposition within OPEC to extending oil output cuts for a further nine months. This announcement came after al-Falih met with his Iraqi counterpart in Baghdad.
Iraq has missed its target for output cuts by more than any other OPEC member, producing about 80 MBOPD more than agreed to. It is unclear if this announcement means Iraq will reduce its production to agreed-upon levels.
According to al-Falih, a new output deal would be similar to the one currently in place, with only minor changes. OPEC will decide one way or the other in the group’s meeting later this week.
Gas up 2.18%
Natural gas rose today as well, adding 2.18% to end the day at $3.33/MMBTU. Current forecast models project a cooler next two weeks in the U.S., which should increase demand for gas. Gas has tracked weather forecasts closely recently, as traders watch weather models to predict demand.
Prices at breakeven: KLR
According to KLR Group, current prices are extremely close to the breakeven cost of U.S. supply of both gas and oil. KLR asserts that after accounting for trouble wells and other unexpected costs, the current U.S. breakevens are $50/bbl and $3.30/MMBTU. These prices are determined by reconciling actual cash capital spending (investing section of cash flow statement) and cumulative production. According to KLR, they are the outcome of full-cycle (unleveraged corporate) rather than half-cycle (well-level) analysis.
