That 1986 Retro Feel­ing’s Haunt­ing the Oil Mar­ket

Saudi’s de­ci­sion not to cut pro­duc­tion bears sem­blance to 1986 when, faced by threat from So­viet Union, it had to boost out­put Oil Plunges Af­ter Out­put Talks Fail

The Economic Times - - Com­modi­ties Plus -

David Fick­ling

New York: If there’s a cer­tain retro feel­ing in the air, it’s not just be­cause every­one is talk­ing about a Don­ald Trump pres­i­den­tial run and a song called “Me My­self & I” is in the charts. Oil mar­kets are also start­ing to have a dis­tinctly 1986 feel to them.

The col­lapse of the week­end’s oil talks in Doha her­alds a phase where open spig­ots will drive prices lower once again. Brent crude fell as much as 7% when it opened af­ter the meet­ing broke up in dis­ar­ray. Saudi Ara­bia and other Gulf pro­duc­ers re­fused to cut pro­duc­tion un­less they could get a match­ing agree­ment from an Iran that hadn’t even both­ered to at­tend the talks. Iran has very litt- le in­cen­tive to agree to such de­mands. As a rel­a­tively new en­trant, Tehran will take what­ever prices it can get. It may even choose to un­der­cut the ex­ist­ing play­ers where it spies an op­por­tu­nity.

Back in 1986, Saudi was fo­cused on the threat of the So­viet Union’s boom­ing, higher-cost pro­duc­tion, and boosted out­put by 1.6 mil­lion bar­rels a day to flood the mar­ket and leave it­self as the strong­est player stand­ing. The 45% in­crease in pro­duc­tion sent prices from north of $30 a bar­rel to south of $15, with some heav­ier, sour grades chang­ing hands for well below $10.

Saudi Ara­bia will be hop­ing that his­tory can re­peat it­self 30 years later, but its ad­van­tages aren’t quite as bul­let­proof as they were back then. — Bloomberg

Oil fell af­ter out­put talks on Sun­day be­tween the world’s big­gest pro­duc­ers ended with­out any agree­ment on lim­it­ing sup­plies. Brent was down 15 cents, or 0.4%, at $42.95 a bar­rel. It had fallen $3 ear­lier in the ses­sion.



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