There might have been a lot of skepticism in the preliminary OPEC production "deal" announced a few weeks ago in Algiers, but much of that is fading away -- for good reason.
While others might have wondered how the numbers were going to add up, I remain convinced that the Saudis, once they publicly commit to controlling OPEC output, will find a way to make the numbers work. The macro takeaway from the preliminary talks just concluded with the Russians in Istanbul on Wednesday is that we'll see a real OPEC deal in Vienna in November, and oil will continue to slowly but surely rally to the end of the year.
But at a more granular level, the trajectory of that rally is still fraught with specific troubles and interesting side stories. The first would be the Saudi "give up" of market share competition and apparent readiness to sacrifice a few hundred thousand barrels of sales for another $15 a barrel in sales price. While U.S. shale producers aren't exactly in a position to gloat over the turnaround in Saudi strategy, they ought to at least get a comforting laugh out of this quoted statement to U.S. independents from the United Arab Emirates oil minister in Istanbul: "If we all collectively agree that there is an oversupply, then we need to collectively participate in fixing this. We are sending an open invitation to everyone."
After a collective OPEC effort to crush U.S. oil production, I'm sure the CEOs of EOG Resources (EOG) , Anadarko (APC) , Hess (HES) , Continental (CLR) and dozens of others will be more than willing to pitch in. Or not.
As for the Russians, they seem ready to do their part. While there were conflicting statements from the Russian oil companies, they all went quiet when Vladimir Putin on Wednesday proclaimed Russia's commitment to a deal with OPEC, even if that deal wouldn't do any more than freeze Russian production -- not curtail it. Considering that the Russians spent the last three months pushing production figures to a record 11.1 million barrels a day, it seems to be delivering precious little in promising not to increase it.
And toward the limitations that might finally emerge, the Russians are hardly alone. Saudi Arabia has also increased its production to a new record, Iran refuses to discuss anything until its production reaches pre-sanctions levels of 4 million barrels a day and Iraq also wants a production increase up to 5 million barrels a day for 2017. Both the Iraqis and the Venezuelans are in crazed complaint about their current officially measured production numbers, which would impact their implied contributions in any deal, and no one has yet mentioned how the inevitable return of sidelined production from Libya and Nigeria would figure in to the final agreement of 33.5 million barrels a day from all of OPEC.
Well, so much for a global oil Kumbaya.
Despite all this, which would certainly make anyone of right mind exceedingly skeptical of the prospects for a real and enforceable agreement, the Saudi minister Khalid Al-Falih is confident of $60 oil by year end -- and so am I.
As I said in a previous column, I've lived the oil markets since 1984, and never have made a dime, while losing quite a few, by doubting the resolve of the Saudis to make oil prices go where they say they want them to go.
If you've followed me closely, you know I am not enamored of oil stocks right now, with few exceptions -- I believe most of the best ones are already overpriced relative to the move that oil has so far made: Look, for example, at EOG Resources, which we sold near $94 about a month ago. Today, it sits at $95, even as oil has gained more than 12% since -- not tempting action. Will we get the kind of dip we need to tempt us back into shares of EOG at this point? I'm not convinced we will. Instead, we'll have to find other, less bloated shale players to try....
Which we'll talk about in the next column.
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