OPEC Discarding LNG Star Qatar

By: Jon Kalchthaler / June 5, 2017

The world leader in liquefied natural gas (LNG) and condensate, Qatar, has had all ties to its neighbors cut off as of today. Crude futures on the NYMEX fell 0.8% today due to the unease this rift could bring to the stability of the global arrangement to cut oil production.  Reuters reported that “Saudi Arabia, the United Arab Emirates, Egypt and Bahrain closed transport links with top liquefied natural gas (LNG) and condensate shipper Qatar, accusing it of supporting extremism and undermining regional stability.”  Qatar is only responsible for roughly 600,000 barrels per day of crude, which in the big picture is not a lot to OPEC, but such a rift between members of OPEC weakened relationships and could put a damper on production cuts moving forward.  With the world watching and waiting to see if OPEC is actually able to rebalance the market with a second round of cuts, such a quarrel is causing a lot of doubt.  Qatar has spoken up by denying any ties with militant groups, but even with this, the Saudis and Bahrain have restricted Qatari planes from entering their airspace and have given any and all Qatari visitors and residents two weeks to leave their countries.  The SPA, a Saudi state news agency, has said "(Qatar) embraces multiple terrorist and sectarian groups aimed at disturbing stability in the region, including the Muslim Brotherhood, ISIS (Islamic State) and al-Qaeda." 

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In the U.S. we are continuing full steam ahead. Bob Yawger, director of the futures division at Mizuho Securities USA Inc., states “The gas continues to flow. There is no disruption in the cargo schedule. At the end of the day, it sends the signal that there’s not this unified OPEC-type situation that is advertised.  The rig count in the United States is up 20 weeks in a row. We’re not going to burn off the storage overhang here in the U.S. any time soon.”  This past week marks the 20th straight week of positive oil rig gains here on our own home turf, with 11 new rigs bringing the total to 733.  This is the highest rig count within the U.S. since April 17th, 2015.  To put it into perspective, the largest number we recorded for rig counts was 1,609 in October of 2014.  We have risen from the lowest recorded number of rigs, 316, since the 1940’s. 

On June 1st of this month President Trump withdrew from the Paris climate agreement.  This is big news because many speculate that with this withdraw from the agreement, President Trump is planning on unshackling the U.S. oil drilling market and allowing it to continue to thrive.  Some fear this is at least until the second round of OPEC cuts cannot keep up with U.S. increased production and the price falls to dangerous levels again.  The U.S. isn’t the only culprit in jeopardy of messing up the OPEC second round cuts though.  Market Realist reports some other key contributors to keep an eye on are:

Brazil- 200,000 bpd higher than in 2016 to a total of roughly 2.8 MMbpd.

Canada- 200,000 bpd higher than in 2016 to a total of roughly 4.7 MMbpd.

Libya- 180,000 bpd higher than in 2016 to a total of roughly 0.73 MMbpd.

Nigeria- 130,000 bpd higher than in 2016 to a total of roughly 1.63 MMbpd.


Categories: Daily Market Update, Industry Update


Jon Kalchthaler

Written by

Jon Kalchthaler


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