(WCTW) Total Control
The Saudis have total control of the global oil market... for now.
The market is playing right into what the Saudis want: total control. On May 3, when we made our OPEC+ Gameplan article public, it wasn't widely known that the OPEC+ voluntary production cut agreement wasn't cohesive. In fact, we still see a lot of confusion over this topic today.
But as we've said repeatedly, this is not an OPEC+ production cut, it's a Saudi cut. This could be illustrated via two charts:
IEA OPEC+ Production
OPEC+ ex-Saudi/Iran Crude Exports
With that said, why do the Saudis have total control?
The low $60s WTI backdrop will usher in lower US shale oil production. Our high-frequency data ranging from associated gas production to weekly US crude oil production show lower volumes.
The voluntary production will be completely unwound by the end of July. The V8, a term created by Dr. Anas Alhajji, is expected to announce another +411k b/d production increase on May 28, which will all but guarantee another increase in June, followed by July. By the July meeting, the entire 2.2 million b/d of voluntary production curtailment will be gone, leaving the Saudis in total control.
The major players in the voluntary production agreement are already cheating; only the complete unwound of the agreement will allow them to "compensate" for their cheating. In other words, the cheaters can produce the same amount they are producing today and compensate for the previous cheating. This equates to no additional production from the other 7 producers.