The GERM Report

-Is UAE pot-stirring normal OPEC+ blather?

-There are devils in the details of a Dallas Fed survey.

Where do we even begin? For much of November, crude oil prices rallied without restraint, climbing some 27%, from $38.97 for Brent to $47.59, by month’s end. Vaccine developments and a chronically-weak dollar caused glee in both equities and commodities. Rig counts were up, holiday spending was relatively decent and life was good. People even traveled by air during the long holiday weekend in the United States. But that was November. It’s December now and we don’t know what OPEC will do. We don’t know who likes who, we’re concerned about a lot of things all of the sudden. Welcome to the winter of OPEC.

Fissures in the ranks of OPEC+ prompted the group to delay a regularly-scheduled meeting to later in the week, leaving investors anxious about what’s next. The price for Brent crude was down 1% as of 2:40 p.m. ET to trade at $47.40 per barrel.

We have more questions than answers at this point for OPEC+. The skin is the same, but the cat is different this time around. Flexing its muscles with new-found reserves, and perhaps emboldened by the prospects of the coveted F-35 stealth fighter from the United States, the United Arab Emirates is making its voice heard in the OPEC stairwell and beyond. The Emirati government has expressed reservations about extended curtailments, while the Saudi government said it was “really disappointed” with its Emirati counterparts, an industry source was quoted by the Reuters news service as saying.

The rumor mill is on overdrive. Is all the attention on the UAE because someone somewhere in the inner-workings pumped the news to drive up interest in the Emirati reserves? Is the UAE indeed irrationally exuberant? Are there broader divisions in the Arab world that revolve around the détente with Israel? Is the UAE doing Saudi Arabia’s dirty work so the de facto OPEC leader can focus on controlling the mob? Nobody likes restraint for the sake of the whole, so why all the attention to the UAE? Or, is this all part of the normal gossip that we deal with ahead of every major OPEC+ decision-making meeting. It’s a bit fun, after all, to not talk about the pandemic. That said, not rolling over the restraint agreement now would be suicide given the current restraints holding back economic recovery.

Elsewhere, the pain is real. Exxon Mobil on Monday said it was writing down some of its natural gas assets by as much as $20 billion and was cutting spending next year to its lowest level since 2005. Pioneer Natural Resources (remember them from the OPEXAS days?) said it doesn’t expect demand to return to “normal” until 2022. In a nod to early this year when Pioneer was calling for extraordinary control to prop up the oil sector, Pioneer CEO Scott Sheffield said the oil industry will “still need some help from OPEC.”

We’ve all read the latest assessment from the OECD on the eventual, but unevenness, of the recovery at this point. Somewhat closer to the energy space, and the Federal Reserve Bank of Dallas finds a not-so-surprising strain on the services sector. In the supplementary questions part of its latest survey, however, there’s lingering pessimism. From the warehouse and storage segment, respondents said they expected production activity in the Permian to drop off and growth in U.S. crude oil exports to subside. From the utility side, “we feel like COVID-19 is stifling business activity.”