- OPEC+ Maintained Production Cuts but Saudi Arabia and Russia have put further cuts in 2021 on the table at the next meeting on November 30th/ December 1st. Why? Supply and demand. Supply up by at least +800,000 barrels per day (bpd) as Libya went from 250,000 bpd at the end of September to 800,000 at the end of October and looking to be at or above 1 million bpd (mbpd) by the time of the meeting. Of course this assumes that the warring factions hold to their ceasefire. In addition, may be back in the legal market again with a Biden presidency – he will undoubtedly undo Trump’s sanctions should he have the opportunity. While such a move would be vehemently opposed by Saudi Arabia due to Yemen (Iran) drone and missile strikes, Biden’s continuation of Obama’s picking the Shia side of the Sunni / Shia rivalry seems most likely. Eliminating sanctions would add another 1.0 to 1.8 mbpd to official OPEC+ supply. Note that Iran does export oil, primarily believed to China using false-flagged tankers and clandestine ship-to-ship transfers (Iran’s oil minister announced it in their parliament). As the graph on the right illustrates, there was plenty of spare capacity in OPEC+ (note that Libya does not have a quota so does not appear on the graph) – and about to be more, if demand does not pick up. COVID fears have caused an expansion of lockdowns, particularly in Europe. With China back to normal road congestion, Europe fell from 100% of normal to 80% during October, with the rest of Asia holding at 70% and North America moved upwards from 45% to 50%. Petroleum demand recovery looked on hold for the next many months. Electric car sales continued to show strength in the EU due to high subsidies (€9,000 through the end of 2021 but may be extended with the new “green” EU debt) – Germany’s plug-in vehicle share of the total was 15% in September while Sweden’s share rose to 34%. In fact, Honda announced that it will stop producing gasoline-powered cars for Europe by the end of 2022!
- US Crude Oil Production came in at 10.6 mbpd in October, well below the production at the beginning of the year of 13.0 mbpd. There were some outages in October due to hurricane activity but that has since recovered. Shale oil output was expected to decline by 123,000 bpd in November, the biggest drop since May, to about 7.69 million bpd. US operating drilling rigs jumped higher, moving to 221 by October 30th from 183 as of September 25th, which should be expected to be limited under Biden. More permanent damage to the oil and refining industry was the closures of Shell’s Convent facility in Louisiana and PBF’s Paulsboro location in New Jersey. These two refineries were the first outside the western US to be wound down or converted to biodiesel and brought the total fuel off-line to 800,000 bpd. In terms of job cuts, Chevron will lay off about 25% of Noble Energy’s employees acquired in its $4.1 billion purchase, Cenovus Energy Inc plans to cut 20% to 25% of its workforce after it acquires Husky Energy in Canada (the job losses there could total about 2,150) and Exxon will cut 14,000 employees and contractors worldwide.
- China Still Hungary for Commodities as the country raised its non-state crude oil import quota for 2021 by +20% on-year. At 11.8 mbpd run-rate in September of this year, the PRC was the world’s largest importer – about twice the US’s rate in August (obviously affected by the COVID lockdowns)! Their hunger extended to soy (China’s imports of soybeans from Brazil jumped +51.4% in September from a year ago) and pork (834,000 tonnes of meat was imported in September). However, that boom should wane if not collapse in 2021 as China’s pork industry recovered further following shortages due to its African swine fever (ASF) outbreak. Chinese pork production grew +18% in Q3 from a year ago, but growing demand left pork stocks at tight levels. Year-to-date Chinese pork production remained -10.8% lower than a year ago, but higher than the forecasted -20% decline.
- Global Grain Production is going well for corn and soybeans, with corn harvesting 82% complete in the US, well ahead of the five-year average of 69% and well ahead of last year at this time, when only 49% of the corn crop had been harvested. Soybean harvesting also was in the final stretch at 87% complete nationally, ahead of the five-year average of 83% and the 71% progress last year. Brazil’s soy planting was off to a slow start on drought conditions but was 42% complete as of Oct. 29, advancing 23% from a week earlier and versus 46% a year ago and the five-year average of 44%
- World’s Gold Mines will produce 3,368 tonnes this year, down -4.6% from 2019 and the lowest in five years, but high bullion prices will help to push up output by +8.8% to a record 3,664 tonnes in 2021, consultancy Metals Focus said. A number of central banks sold the precious metal, led by Turkey (22.3 tons) and Uzbekistan (34.9 tons) with Russia selling the yellow metal for the first time in thirteen years.
Finally, global wine production will remain below the five-year average this year, dented by low South American volumes and European Union output caps after the coronavirus crisis sent sales sliding, per the International Organization of Vine and Wine. The fires in California’s wine country also hit production either by direct fire damage or indirect “smoke taint” though the damage is not as extensive as a few years ago. In initial estimates for 2020, the association pegged world wine production at between 253.9 million and 262.2 million hectolitres. With the lockdowns, demand has been up in 2020 with retail booming between +25-50% per the noted wine author and taster Kevin Zraly.
David Burkart, CFA
Coloma Capital Futures®, LLC
Special contributor to aiSource