The GERM Report

-UAE may be posturing. Or it may be nothing.

-Kemp sees the market getting tighter.

Crude oil prices suffered minor losses in the Thursday session on the back of continued recovery in Libyan production and fractures in the OPEC+ group. Commodities for much of the week were supported by positive developments in the pursuit of a vaccine to control COVID-19, though much of that optimism has faded as result of an uptick in new cases in the United States and Europe. Reuters oil oracle John Kemp sees markets tightening by next year, though best not tell OPEC that. On the geopolitical front, Israel and Lebanon are working to settle long-standing maritime border issues in a tumultuous international landscape.

It was a bit of a lackluster day for commodities, which most major indices showing only marginal movement. Tracking US crude oil levels finds WTI searching potentially for a new level of consensus in the lower $41 range. Brent crude oil was down just 0.11% as of 2:38 p.m. ET to trade at $44.29 per barrel.

The market can’t seem to get enough of Libya this year. The OPEC-member has improved production from a trickle earlier this year to roughly 1.25 million barrels per day. A good chunk of that may already be on the water. That compounds the question for the architects of the OPEC+ movement as they get set to consider whether to relax in January and put another 2 million bpd on the market, or stay where they are. In a forum for Gulf Intelligence on Thursday, Matt Stanley, the director for Star Fuels, said it was ironic, however, that news of force majeure in Libya would send the bulls charging, but a production boost had only a muted impact.

Compounding the situation for OPEC+ is tacit cold feet from the Emirati government. Energy Intelligence dropped a bomb shell on the market late Tuesday by reporting the UAE had reservations about its role in the multilateral restraint movement.

“Energy Intelligence understands that some in the UAE believe current Opec-plus practices serve to benefit competitors outside the group, such as US shale producers,” its report stated.

US shale producers are bringing more rigs to service, but at a snail’s pace. Even still, most players can survive, albeit on rations, in this price environment, though the mighty might Permian basin continues to thrive.

At stake for the UAE are long-held frustrations with the leadership of Saudi Arabia and Russia, two former price-war opponents who came together to help broker the current arrangement. The Emirates are also trying to position Fujairah as a hub that could rival Singapore and other heavily-trafficked areas. Murban crude, delivered for the UAE from Fujairah, is also making a splash as a futures contract. People we spoke with on Thursday said it may be part of an effort to boost production capacity. Or it could be just the normal OPEC chatter we’ve come to expect before important meetings. In any event, Emirati Energy Minister Suhail al-Mazrouei seemed to walk back the concerns later in the day.

“As a reliable and longstanding member of OPEC, we have always been open and transparent in all our decisions and strategies in support of OPEC,” he said in a statement to Reuters.

An OPEC source who spoke to Platts on condition of anonymity largely confirmed what our own sources were telling us early Thursday.

“ADNOC wants to invest and increase production,” the source said. “I think the UAE is becoming more assertive about its interests, not just at OPEC. Also feel that some countries are realizing they want to see their oil [produced] while they can.”

The overwhelming number of respondents to an informal survey from Gulf Intelligence on Thursday said it was assumed that OPEC+ would not ease back on production. With demand destruction showing up in every place from U.S. gasoline consumption to jet fuel, it might be ill-advised for OPEC to relax. But, according to John Kemp, the market looks like it could be getting tighter.

“The current gap between crude processing and products consumption is around 2 million barrels per day, which will have to close when product stocks are closer to normal,” he wrote. “If the global economy is recovering at the same time, and deployment of an effective vaccine allows international passenger aviation and other normal business activity to resume, the boost to oil consumption could be very large.”

Elsewhere, Israel and Lebanon are ready to talk about long-standing disputes over their maritime borders. At issue is large volumes of natural gas in the Mediterranean, where Israel has already shown its mettle with the giant Leviathan gas field. Lebanon, meanwhile, has long aspirations to bring gas reserves in its waters to the market, something that would arguably help with the beleaguered country’s recovery. But with Israel emboldened by the Trump administration and the so-called Arab Pivot, we wonder if diplomacy will turn to land grab to the detriment of the Lebanese. That would almost certainly stir the hornet’s nest that is Hezbollah.