Helima Croft - BC Capital


Last quote by Helima Croft

It's a combination of political and economic priorities coinciding with wanting to have a better technical fundamental outlook for oil.feedback
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May 25 2017 OPEC
We can learn a lot about a person if we know what types of things he or she talks about or comments on the most frequently. There are numerous topics with which Helima Croft is associated, including Saudis, Saudi Arabia, and market. Most recently, Helima Croft has been quoted saying: “Once we had the Russia and Saudi announcement a week ago, the expectation is that we will get a nine-month extension as opposed to a six-month extension. I'm a little bit concerned if we just get a nine-month extension without a deeper cut it would kind of be a nonevent for the market. The argument is that you need to go beyond Q1 of 2018 to get inventories below the five-year average. That was the sort of surprise announcement that came out a week ago, but that puts a lot of pressure on this meeting.” in the article Here’s what OPEC needs to do to get oil above $60: RBC.
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Helima Croft quotes

This is the first year, they were out of recession… What was the only good news for Russia? The oil price. I don't think it's a coincidence they're extending it to March.feedback

The bears are in control of this market. My base case is that they extend the cut at current levels, but I think the chances of them doing a deeper cut are higher than a non-extension scenario. No one wins in 30 below conditions.feedback

If you are sovereign head of state in one of these oil producing countries, you fear more than anything a price reversal back into the $40s or the $30s.feedback

We see it grinding higher over the back half of the year, recently. . If these strikes are not followed up by a serious effort to oust the Syrian leader [Bashar Assad], none of these scenarios may materialize and the oil implications will remain negligible. However, given that President Trump had previously signaled deep disdain for humanitarian interventions and Middle Eastern military engagements, we are now in uncharted waters.feedback

We see that 1.8 million barrel a day OPEC, Non-OPEC coordinated cut. We see them rolling that over for another six months. That's why we are constructive going into the back half of the year.feedback

One thing OPEC has to worry about is if they don't extend the production cuts, a lot of that Permian production was hedged when oil was in the mid $50s. Even if we fall back further, that production is coming on.feedback

This is very important for Canada's outlook and to be able to move their barrels, but does it really impact the market tomorrow? No.feedback

One of the initial arguments about energy independence with this pipeline was that we're getting more crude from Canada. We're not getting it from other countries in the Middle East, so it's basically increasing our supply security through giving us relations with friendly producers as opposed to being dependent on producers that we sometimes have problematic relationships with.feedback

It's not like there are egregious cheaters in the first place. The breakdown of who is doing what is a bit fuzzy, but some are doing more. Some are doing less. I think Iraq will be a subject of discussions, and whether there's any flexibility for Iraq. Can you really hold them to 210,000 barrels (cut)? We went from having these very heated debates over whether OPEC would cheat and could they hold it together, to: 'Look what OPEC's done so far. It looks pretty good.feedback

Everyone is focused on the U.S. … If you look outside the U.S., you look at places like Japan. We're seeing the rebalancing. The U.S. is going to be the last. Do they really want to flirt with the $30s? Is that something that's going to enhance their ability to lead in one of these petrostates? Barkindo is clearly aware of where the market is right now, and any appearances of cracks that appear in OPEC will have an effect on sentiment. He's very aware of that. I think he's going to want to generate the most positive headlines coming out of that meeting.feedback

I kind of feel like this is Saudi cracking the whip ... not threatening to pull out of the deal but leaving roll over up in the air.feedback

If MBS is here to talk about broader economic issues, selling the Saudi IPO, selling the broad Saudi Vision 2030 plan, the reality is Saudi Arabia looks more economically attractive in a higher oil price environment. This is the tension. In a lower oil price environment, the math on that becomes more challenging.feedback

Coming after Khalid Al-Falih's deliberate comments about compliance, his criticism of some other parties keeping up their end of the agreement, it feeds a narrative of Saudi backing away from the agreement. If Saudi backs away, there is no agreement. Saudi drives the OPEC bus. I do think this is more a shot across the bow.feedback

What had been sort of working against the sell-off had been OPEC having very strong message discipline. For most of the year, they just kept coming out and saying, We've got this. Compliance is great,' and then it starts to break down at CERAWeek. I think the Saudis always knew the Permian would be a problem, but you can't have the Permian and not have everybody else in OPEC and non-OPEC that agreed to cut not do their part. So now we have some wavering on the Saudi side, which makes it a bit of a perfect storm right now ... for sentiment.feedback

Barkindo, he's like the whip of OPEC. There are stories of Barkindo going to these capitals and trying to drive compliance. He drove the deal home. He's the one really forcing compliance. He knows he needs to talk to the heads of state rather than the oil ministers. He's a skilled operator. Kahlid is the big brand ambassador for Vision 2030. … He's like 'minster everything'. He's the big seller of the Aramco IPO. He'll double down on the Vision 2030, and he'll reaffirm Saudi commitment to the reformation plan.feedback

This is the push/pull of the market. I think OPEC is hoping that this remains largely a Permian story. ... That a lot of the cost deflation we saw will rise as prices rise. Service companies will again charge more. There's a sort of uncertain equilibrium they have to deal with in U.S. production. They hope it will remain largely Permian, but it could get away from them and require deeper cuts. I don't think the problem is compliance within OPEC, because the Saudis will do what it takes.feedback

It's the type of barrel that chokes the market. We called it the Nigerian barrel last year.feedback

Yes, you could maybe have an Angola fall off, but I think the core GCC powers this decision through.feedback

I think the Saudi government is probably very happy with the Trump administration. This is the one issue where I think that you could really see a problem in the U.S.-Saudi reset relationship.feedback

That's why we don't think we're going to break out into the $60s or $70s anytime soon.feedback

That's why I think this OPEC compliance meeting this weekend is important. If there is some negative headline coming out of that, that's a catalyst to have a sell-off.feedback

There was a lot of overnight diplomacy. That was the turning point. The skeptics in the room needed to see the numbers. It looks like the Saudis drove the hardest bargain on specificity. They knew what the market needed, and they pushed it through.feedback

I think even the requirement for non-OPEC (nations) is really about the Saudis looking for the most credible statement they could get. I think they understood there was so much skepticism in the market.feedback

They risk popular backlash. This will be a popular decision in Saudi Arabia, and it gives Mohammed bin Salman some breathing room.feedback

What I hear is kind of crazy. The fear in town is it's Doha redux. Everybody's worst nightmare.feedback

There's a new sheriff in town in the U.S., so that new sanction relief is not guaranteed by any measure.feedback

Once again, it seems (Mohammed bin Salman) has decided Iranian participation in a cut is mandated. If he sticks to that position, it doesn't lift off tomorrow. I think a cut was never on the table for Iran. Is this just a hard line tactic? Are they trying to get the maximum concession?feedback

I think the problem is who wants it more. We saw in September (Saudi Arabia) wanted it more. Maybe they wanted it more in September because they were doing a bond issuance.feedback

We're potentially going to fall apart over 200,000 barrels. This is what it comes down to. We're in the realm of ego … This is kind of lunacy. They're not fighting over a million barrels.feedback

Will there be a deal? I think yes. There will be some type of optic where it looks like Iran does something.feedback

It's not so easy for them to walk away now. The problem for all of these countries is if you don't get it done on Wednesday, you can't jawbone this market any more. You're done. You're going to need to find a new trick next year.feedback

They're certainly injecting a lot of drama into this ... The only way to get a deal is to exempt Iran and get it done ... Iran is not going to be producing 4 million barrels a day in 2017. Iran is basically tapped out at this point.feedback

We think it's binary. We think it tests $40 if there's no deal, $50 if there is a deal.feedback

The Saudis are not aiming for 70 dollar oil or 80 dollar oil. They're being pragmatic. They do not want to resurrect the entire U.S. shale complex.feedback

They're making everyone very nervous in the market right now.feedback

It's binary. If you get a deal done you affirm the case for 50 (dollars per barrel). Failure to launch, you're below 40. We're not nearly as complacent as Khalid al-Falih that they can survive this easily.feedback

But given that there still remains such residual skepticism about a deal, investors will seize on any headline as a sign things will fall apart next week in Vienna.feedback

I think the burden is going to be heavier on Saudi Arabia [because they have] key policy priorities, they want the IPO of Saudi Aramco.feedback

Why I don't think they're aiming for $60, $70, or even $80 right now is they want a muted recovery.feedback

I don't think those protesters are going to get much comfort in a Trump administration.feedback

The tea leaves look like they're lining up now for some type of agreement come November 30.feedback

I think ... you could see the U.S. pulling back on renewable fuel standards, pulling back on CAFE standards. I think that could actually be supportive for oil demand. But ... I don't think climate change is going to be a big issue for this administration.feedback

It's striking to me that Khalid Al-Falih twice in the last week came and talked about the importance of getting this done.feedback

If they want a deal, there will be a deal. Saudi Arabia drives the bus.feedback

Iran has ramped up. Iran is back to pre-sanctions levels, but can Iran do much more without foreign investment? And this is where the Trump election becomes very, very important.feedback

I think it will give them pause before going back in there, because the contract terms aren't great. It's not the easiest place to do business. So you have to choose between Iran and the U.S. – I still think you're picking the U.S.feedback

I expect them to get the deal done. If Venezuela could cheat, they would, but I think they're all out of bullets at this point.feedback

I think Iraq will have to take a look in the mirror and say what does $40 crude do to our finances.feedback

Getting close to $40 gives OPEC a gut check, but I think the biggest question is can Iraq temper their rhetoric.feedback

In the absence of stronger statements or better weekly stats, you'll see it trending down. The problem is the market is really long at this point.feedback

This IPO is a very big policy priority for the deputy crown prince of Saudi Arabia. I think Saudi Arabia is incentivized to make this work.feedback

I think they'll get it done, but I think they'll get it done right before November 30.feedback

They would prefer Iraq to stay in the tent of doing something. This is where it's going to be a bit of a push and pull, but I don't think anyone is incentivized to have this thing blow up.feedback

Here's the problem for Iraq, and this is where they could push it too far. The Iranians are in a financial position to walk away. The Iraqis don't have a major slug of product coming on.feedback

It would be one thing if the Iraqis had 500,000 barrels up their sleeve that they could put on the market.feedback

They were talking about this well over a year ago. They made good on what they said they would do. It is a break of past practices. I think the IPO is the next big hurdle for them. I hear a lot of concerns about transparency.feedback

I think the next big question is will the IPO fly? The debt is a break with the past of how they used to manage their affairs. They're putting debt in the category of integration with capital markets, but previous regimes took pride in having low debt-to-GDP ratios. It's taking something that could have been seen as a negative a few years ago and making it broadly positive.feedback

I have to give him credit. He is not doing anything by half measures. This is a man of singular ambition and it's at least in terms of this bond deal. It's not clear that it's broadly popular to borrow. The fact he pushed ahead with it and pulled this thing off, you can say this is a win for MBS. I thought he might have gotten more push back for doing this.feedback

We're basically going to see the markets rebalancing anyway. I think they're very incentivized to keep the momentum going through November. We still have a lot of skeptics. … If they go dark, people will question whether they can get this done. They have to talk it up. There's still just this residual skepticism that you need to have individual country quotes. No, they don't. Saudi can make it happen with the [Gulf Cooperation Council] countries.feedback

Borrowing gives them a little more breathing room on their foreign exchange reserves. If they keep draining their FX reserves, people will question the Saudis' ability to maintain the currency peg.feedback

Libya has three governments at the moment; there are 100 militias in Tripoli. The country is awash with weapons. It's like asking Somalia to get their act together.feedback

I don't think they are aiming for $70 to $80, because I don't think they want to bring it all back.feedback

I think that Saudi Arabia, OPEC and the Russians hope that yes some U.S. production will come back but $50 to $60 is probably not enough to resurrect the entire U.S. shale complex. I don't think they are aiming for $70 to $80, because I don't think they want to bring it all back.feedback

Almost all these other countries are basically maxed out and really it will have to be the Saudi's and the GCC (Gulf Cooperation Council) who takes the cut.feedback

If the Saudi's incentivize the deal, I think it gets done.feedback

What is important is this is incredible to get this done. Saudi Arabia really had to give ground.feedback

We talked about Naimi being the maestro. This is Khalid al-Falih being the diplomat. This time, the Saudis basically got victory out of the jaws of defeat. Khalid al-Falih is single-handedly rescuing OPEC's relevance.feedback

I think it really comes down to how they manage the message. It looks like they're not going to get any kind of hard agreement but can they keep hope alive for something on Nov. 30. They have to go out and broadly say they're all on the same page, and they just have to work out the details.feedback

If it's a debacle, and they can't agree on anything, they're too far apart, and they make it look like nothing happened, and they get a build in inventories and rig counts are back up, could they test $40? Yeah.feedback

When the Saudis have to cut public sector wages by 20 percent, the Saudis are facing some challenges.feedback

I'm getting shades of the nuclear talks where at the last minute, they kept putting in new demands.feedback

If they fail, it won't be for lack of trying. All these things signal that they're serious this time. For the Iranians and Saudis, that have no diplomatic relations, this shows everyone wants to get this done.feedback

Perhaps most compelling (a reason to reach a collective output deal), many of the biggest and most influential producers are close to maxing out and hence may judge that there is little downside to agreeing to cap output at current levels or sign up again for a collective ceiling.feedback

Most notably, a unified cartel would help to install a floor in the market, as quantifiable measures should hold members accountable. Additionally, such a framework could be struck in a way that it accommodates Iran's return to pre-sanction production levels. We view this as likely because the cartel historically has made country level concessions under certain circumstances.feedback

I think the market is missing the story. They're just going back and saying nothing came of this. We really had incremental change. When Putin is putting his weight behind something, I wouldn't rule it out.feedback

People are so bearish at the moment and they just think OPEC has no credibility. Vladimir Putin was silent in the runup to Doha. He said nothing and the fact that he came out and praised Mohammed bin Salman saying this is the right thing to do, Putin's putting his personal capital in this and I think that's a different element.feedback

We see Monday's announcement of a Russia-Saudi energy cooperation agreement as meaningful, despite the lack of a formal production freeze at the G-20 summit.feedback

Although cooperative action taken by the cartel and other key producers may prove to be more of an optics play than physically actionable, at a minimum, it alters sentiment, puts a floor into the market, and reminds the market of OPEC's capacity to cooperate. It would also prove that the prolific pronouncements of the cartel's demise are premature.feedback

This is all a sentiment game at this point. I think sentiment has been driving the market, and so I think if you have the sense that OPEC could do something, it does firm a floor and potentially moves us four or five bucks higher on the day.feedback

It's not my base case, but you have to think there's a good chance they would do it. I don't understand how people will reflexively say 'no, no, no'. I clearly saw there was a difference in the Saudi tone. Saudi was willing to convey that they care about OPEC. They care about the collective cartel.feedback

It's really, really price impact dependent.feedback

People were waiting for something from the Saudis to make this credible. Nobody believes Venezuela.feedback

I think everyone who loved to cheat loved the collective ceiling. This is where the accountability becomes much more of an issue. How do you give Iraq an individual quota when they've been out of the market for so long. The band idea gives enough latitude to say you can produce between X and X, and that might be a way to bring everyone together.feedback

They can change market sentiment by signaling they're going to be more engaged. They changed the conversation again. It's basically a little smoke and mirrors.feedback

OPEC signaled that they're waiting in the wings and they confirmed the floor by changing the conversation. There are a lot of shorts. We exceeded the February short position last week. They can accelerate the short covering rally. They're a catalyst.feedback

I'd suspect they will revive the discussions about potential new mechanisms. I certainly think if the market stalls out in the $40s, or if we move lower they could do something. Our view is the market is oversold at this point. The market is coming in to balance.feedback

All of a sudden, the price narrative was divergent from the OPEC message. They see the wisdom of changing the rhetoric … It's no surprise they'd go back to the playbook that worked successfully.feedback

One thing they really could do is bring forward the Venezuelan proposals to explore production bands for individual countries.feedback

There's still this incredible battle. This is the problem with having U.S. production and having less demand in the U.S. Everything becomes a battle for Asia. It's also internally with in OPEC. Iraq has been stuffing a lot of barrels into China. It's a fierce battle for Asian market access. They're competing against Russia.feedback

The gasoline glut was the catalyst for this latest move lower. [We] look at the refinery run test, we look at maintenance season [and] that's near-term bearish for crude. We think you have to clear out gasoline first.feedback

Right now there is kind of this fear that we could get 900,000 additional barrels [per day] out of Libya, the head of the national company said that by year-end.feedback

We think India is roaring right now and will be a key driver of demand.feedback

We think this market is balancing and we think we will have moved out of the product glut story by then.feedback

We remain cautiously constructive on demand we do not see this going over a cliff and we are not petrified of some fall off in Chinese demand.feedback

Oil production, when we look at the main numbers, were down 120,000 barrels in Venezuela. That's the largest month-by-month drop since 2003. the country seems to be going from worse to worse.feedback

Venezuela is the next shoe to potentially drop. That's the most important country to watch right now.feedback

Because we did not have the public displays of discontent like in December, they can spin the non-agreement on a production ceiling as a sign of OPEC unity. The party line is that they all agreed the market is moving in the right direction.feedback

It shows things can shift fast ... there was a working assumption on Friday that no production would be offline.feedback

Unless Saudi Arabia or Iran has a change of heart, we fail to see how the outcome will be any different, and it may ultimately be mounting supply disruptions in stressed states, rather than collective cartel action, that causes an accelerated market rebalancing.feedback

I think they're they're trying to put lip stick on this pig. They will try to make sure they don't walk away grim faced.feedback

They all hope to reach a deal, but the country that may not care is Saudi Arabia. Until we have a comment from a Saudi official who is connected to MBS (bin Salman) ... I'm not going to believe it.feedback

They need to come to an agreement, and if they don't get an agreement they have to manage the optics. If it ends in recriminations, that's where you have a sell-off.feedback

This is a clear and present danger, if they don't get oil prices higher. Maybe Mohammed bin Salman doesn't care, but these other GCC countries care.feedback

I think he's the biggest wild card factor.feedback

This is dead in the water then. No one is going to overrule bin Salman on oil policy. If he's going to stick to his position, there's no point in showing up in Doha.feedback

Iran came back faster (than expected to market). What if it comes back bigger?feedback

It may not be a shooting war between the Saudis and Iranians, but they fight proxy wars. You have Shiite demonstrations in the east. that is problematic.feedback

He did advocate civil disobedience. He did advocate overthrow of the Saudi monarchy but he was never known to be calling for a violent overthrow.feedback

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