Breakup of Saudi-Rus­sian “Bro­mance” Would Col­lapse Crude Prices

Iran News - - INTERNATIONAL -

LONDON (Bloomberg) - The Saudi- and Rus­sia-led sup­ply lim­its that have lifted crude to a 2 1/2-year high must be pro­longed for an ex­tended pe­riod or prices will col­lapse, said Ed Morse, global head of com­modi­ties re­search at Cit­i­group Inc.

In­vestors al­ready are as­sum­ing OPEC and its al­lied pro­duc­ers will agree at the end of this month to ex­tend the lim­its well be­yond their March ex­pi­ra­tion, Morse said at a gath­er­ing of en­ergy econ­o­mists in Hous­ton on Mon­day.

Morse char­ac­ter­ized the his­toric 2016 rap­proche­ment be­tween Saudi Ara­bia and Rus­sia that helped lead to the out­put lim­its as a “bro­mance,” and said any­thing short of a de­ci­sive step mov­ing for­ward will dis­ap­point traders and trig­ger a mas­sive un­wind­ing of long po­si­tions in the fu­tures mar­ket.

That in­cludes adopt­ing half-mea­sures, such as ex­tend­ing the deal by just a few months or de­lay­ing a de­ci­sion un­til next year, ac­cord­ing to Morse. For traders, “it’s log­i­cal to do the ex­ten­sion,” he said. “Oth­er­wise, it’ll trig­ger a sell­off.”

Morse’s remarks came just hours af­ter OPEC Sec­re­tary-Gen­eral Mo­ham­mad Barkindo gave as­sur­ances in Abu Dhabi that the world­wide oil mar­ket is re-bal­anc­ing at a quick­en­ing pace and pro­duc­tion cuts are the “only vi­able op­tion” to re­store sta­bil­ity.

The Or­ga­ni­za­tion of Petroleum Ex­port­ing Coun­tries should de­cide at its meet­ing later this month whether or not to ex­tend the cuts, United Arab Emi­rates En­ergy Min­is­ter Suhail Al Mazrouei said in a speech at a con­fer­ence in Abu Dhabi. Neigh­bor­ing Oman backs pro­long­ing the out­put lim­its be­yond March and sees pro­duc­ers ex­tend­ing them un­til the end of 2018, Oil Min­is­ter Mohammed Ha­mad Al Rumhy told re­porters.

OPEC raised es­ti­mates for the amount of crude it will need to pump to meet de­mand next year by 400,000 bar­rels a day to 33.4 mil­lion a day, ac­cord­ing to a monthly re­port Mon­day from the group. As that’s about 670,000 a day more than OPEC pro­duced in the third quar­ter, global in­ven­to­ries would di­min­ish fur­ther in 2018 if the group and its al­lies con­tinue to keep sup­plies re­strained. Stock­piles have de­clined by more than 180 mil­lion bar­rels this year alone, Barkindo said.

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