“The above was agreed by all the OPEC & non-OPEC oil producing countries participating in the Declaration of Cooperation, with the exception of Mexico, and as a result, the agreement is conditional on the consent of Mexico” - OPEC

Upcoming Oil/Production Policy Dates:

• April 9th (yesterday): OPEC+ Meeting (conditional deal)

• April 10th, AM: Potential OPEC+ Deal (waiting on Mexico)

• April 10th: G-20 Meeting - Potential Deal on top of OPEC+

• April 14th: TX RRC Pioneer / Parsley Hearing

• April 21st: TX RRC makes proration decision

OPEC+.

Let us begin by giving credit, where credit is due.

1. Amena Bakr (Energy Intel) did an outstanding job covering the events live, as they happened; if you use Twitter as a tool, we recommend following her

2. This guy - OPEC Secretary General Nigerian Mohammed Barkindo:

Politics aside, if the goal was to to use policy to intervene in the oil markets, in an attempt to minimize damage to the Global Oil & Gas Industry, we believe that Secretary General Barkindo used the tools at hand appropriately -

Before the meeting, Barkindo set tone - the APPO (effectively, the African wing of OPEC), released a statement, saying that they would support as a group the efforts or OPEC & non-OPEC members to stabilize the oil markets.

And they did. Pushback came from other participants.

Preemptive commitment is simply good leadership.

Secretary General Barkindo then delivered the opening remarks, which we recommend everyone read.

A few noteworthy statements:

“It is imperative we take urgent action.  It is in all of our interests, and it is also in the interests of consumers.  That is not to say that any medicine will be easy; obviously, it won’t.  But it is clear that it is needed.  And it will benefit us all.”

“These difficult times require unparalleled flexibility and commitment.”   

&

“To put this in some context, the OPEC Secretariat’s assessment of available global oil storage capacity stands over one billion barrels.”  

“Given the current unprecedented supply and demand imbalance there could be a colossal excess volume of 14.7 mb/d in the 2Q20.  This oversupply would add a further 1.3 billion barrels to global crude oil stocks, and hence exhaust the available global crude oil storage capacity within the month of May.”

THE MEETING.

10 1/2 hours of statements & negotiations followed Sec Gen Barkindo’s opening remarks.

• TL;DR - AMLO was being a PENDEJO

The events, as they happened:

• The heads of the delegations took turns speaking in an open door session

• Rumors begin to circulate of a 20MM bopd cut

• WTI spikes 10%

• Russia calls for other countries (US) to participate

• Saudi calls for a large cut; Angola supports

• 10-12MM bopd cut, beginning in June is discussed

• Saudi & Russia seem to be in agreement on their share

• Tension among the group on where the rest comes from

• 10MM bopd cut, beginning in May, is now the discussion

• Negotiations turn to where the baseline for the cuts begin

• Saudi & Russia want 11.3MM bopd to be their baseline

  • In Jan, Saudi was producing 9.75MM bopd; the baseline matters

• All other members push back on these baselines

• Saudi Minister expresses the need to extend the cuts until Apr 2022

• Expectation is an additional 5MM bopd cut from G-20 meeting

• Iran, Libya & Venezuela are made exempt from the deal

• Smaller producers want assurances that the US participates

• Kazakhstsan, Brunei & Mexico express displeasure w/ their baselines

• Kazakhstsan & Brunei agree

• Mexico remains as the only holdout

• WTI proceeds to drop 10% for the day (a 20% intra-day swing)

• Mexico proceeds to reject both its baseline & cut size

• A break is taken - MbS & Putin call Trump

• After 4 1/2 hrs of making the group wait, Mexico’s representative leaves the “virtual” meeting; it is after 2am in Saudi Arabia…

• An agreement is drafted, conditional on Mexico’s participation

• Debate continues as to whether Mexico will be included

• At ~5AM Saudi time, the meeting is adjourned, no agreement

• At 6:45AM in Riyadh / Moscow, OPEC releases a statement of conditional agreement

Aside from conditionality, the main takeaway from OPEC’s statement was:

“Adjust downwards their overall crude oil production by 10.0 MM B/D, starting on 1 May 2020, for an initial period of two months that concludes on 30 June 2020” - OPEC

**It’s hard to gauge how this plays out - there should be more clarity after the G-20 meeting today**

MARKETS.

Well, that Fallen-Angel thing we were talking about on Wednesday…

Wow.

***Literally - the next day - the Fed attacked the issue***

But first - what it did (this example is a Ford bond):

Ford was one of those Fallen Angel credits…

… they lost their IG rating in March.

The Fed’s new policy / facility is designed to fill that void of liquidity.

Specifically,

“…will purchase in the secondary market eligible individual corporate bonds as well as eligible corporate bond portfolios in the form of exchange-traded funds (ETFs)”

&

“An issuer that was rated at least BBB-/Baa3 as of March 22, 2020, but was subsequently downgraded, must be rated at least BB-/Ba3 as of the date on which the Facility makes a purchase. If rated by multiple major NRSROs, such an issuer must be rated at least BB-/Ba3 by two or more NRSROs at the time the Facility makes a purchase”

Like we said, markets are trading off of liquidity.

Right now, we don't think valuation-based expectation trading works. 

Liquidity-based expectation trading is working…

Kinda

But we just don’t see how anyone can consistently forecast the policy moves that are driving liquidity.

***The Fed buying ETFs was beyond the wildest dreams of MMT Bernie Bros 8x weeks ago***

Outside of Credit Markets, look at how WTI was moving during the OPEC meeting:

***A 20% intra-day swing has only happened 3x times in the last 30yrs***

So, yeah - right now - if you’re actively trading anything based on fundamentals… good luck.

And if you are that gambler, you better not be using leverage with market value tests.

Or short-term repo.

Getting margin called or having a repo facility closed on you is a great way to end up in Michael Lewis’s next book -

OTHER NEWS.

• US banks prepare to seize shale assets

• India is buying Saudi crude for their strategic reserves

• Lenders are backing out of the Hilcorp / BP Alaska deal

• Chesapeake may finally file Chapter 11

• Sanchez’s DIP is impaired… pretty unprecedented

That’s it for this week - if you get a chance, this interview is worth watching - they don’t get to heart of the issue, but it’s the closer than most other public conversations - catch y’all Tuesday.