Oil ‘hee­bie-jee­bies’ as prospects of OPEC deal dim

Kuwait Times - - BUSINESS -

Oil prices dipped yes­ter­day as ex­pec­ta­tions dimmed of an OPEC agree­ment to re­duce the car­tel’s gush­ing of crude into the mas­sively sat­u­rated global mar­ket by around a mil­lion bar­rels per day. Prices were also hit as non-OPEC Rus­sia con­firmed it would not send a del­e­ga­tion to the Or­ga­ni­za­tion of the Petroleum Ex­port­ing Coun­tries’ meet­ing in Vi­enna to­day. “There is no need (to at­tend the meet­ing), OPEC should hold its meet­ing first,” Rus­sian En­ergy Min­is­ter Alexan­der No­vak said yes­ter­day. “Sure, if there is a con­sen­sus and OPEC takes a de­ci­sion, we will come to an agree­ment as quickly as pos­si­ble,” he added, though he did not spec­ify a time­frame.

In late morn­ing Euro­pean trad­ing, US bench­mark West Texas In­ter­me­di­ate for de­liv­ery in Jan­uary was down 73 cents a bar­rel to $46.35, in what mar­ket an­a­lyst Jasper Lawler at CMC Mar­kets called “hee­bie-jee­bies” on the eve of the talks. Brent North Sea crude was down 0.72 cents to $47.52. An­a­lysts ex­pect fur­ther falls if OPEC fails to agree to­day its first joint out­put cut in eight years in an ef­fort to re­duce the global glut and so lift prices. The group’s big play­ers-Saudi Ara­bia, Iran and Iraq-dis­agree on what size cuts each mem­ber will make, and the car­tel wants non-OPEC coun­tries like Rus­sia to re­duce pro­duc­tion too. Rus­sia is cur­rently pump­ing some 11 mil­lion bar­rels per day (bpd), a level not seen since Soviet days. Hit hard by the low price and West­ern sanc­tions, Moscow has said it is ready to freeze out­put but not to cut it.

While mak­ing life cheaper for con­sumers and busi­nesses, two years of low prices have wreaked havoc with the pub­lic fi­nances of OPEC mem­ber states, even in the wealthy Gulf states. But Iraq and Iran, OPEC’s big­gest pro­duc­ers af­ter Saudi Ara­bia, on Mon­day con­tin­ued to ex­press ob­jec­tions to a pro­posal to cut up to 1.2 mil­lion bpd from Oc­to­ber lev­els, Bloomberg News re­ported, cit­ing an OPEC del­e­gate.

In a 10-hour meet­ing, Iran said it might be ready to freeze pro­duc­tion at about 200,000 bar­rels a day above its cur­rent out­put of around 3.975 mil­lion bpd, Bloomberg said. Saudi Ara­bia hit back say­ing Tehran should freeze its pro­duc­tion at just over 3.7 mil­lion bpd-more or less its cur­rent level.

Iran has con­sis­tently said it won’t cut pro­duc­tion un­til it has reached pre-sanc­tions lev­els. It is also a fierce re­gional ri­val of Saudi Ara­bia, en­gaged in a proxy war in Ye­men and back­ing dif­fer­ent sides in Syria. Iraq mean­while has said it will cut out­put but that it is short of money needed to fight Is­lamic State ex­trem­ists. It also dis­putes with OPEC the level of its cur­rent out­put. OPEC king­pin Saudi Ara­bia added to the pes­simism about prospects for a deal on Sun­day by ap­pear­ing to say it could live with­out an agree­ment. Re­cov­er­ing de­mand, said En­ergy Min­is­ter Khaled Al-Falih-due in Vi­enna later-would “sta­bi­lize” prices in 2017 any­way.

‘Kick­ing the can’

Prices had made a slight re­cov­ery Mon­day af­ter Iraqi Oil Min­is­ter Jab­bar AlLuaibi sounded an up­beat note as he ar­rived in Vi­enna, say­ing he was “op­ti­mistic” that the 14-coun­try group would strike an ac­cord. Al­ge­ria, which is try­ing to me­di­ate a deal, on Mon­day pro­posed a com­pro­mise with Iran cap­ping its pro­duc­tion at 3.795 bpd, del­e­gates said, ac­cord­ing to Bloomberg. How­ever, there has been no in­di­ca­tion that any such pro­posal will ac­tu­ally be ac­cepted when the oil min­is­ters meet to­day. Bjarne Schiel­d­rop, chief commodities an­a­lyst at top Nordic cor­po­rate bank SEB, said that the chances of an out­put cut are now “very low”.

The best pos­si­ble re­sult, at this stage, was that the club would end up with a face-sav­ing deal while “kick­ing the can to the next OPEC meet­ing in half a year’s time”, Schiel­d­rop said. — AFP

VI­ENNA: Iran’s Min­is­ter of Petroleum Bi­jan Nam­dar Zan­geneh speaks to jour­nal­ists at a ho­tel in Vi­enna, Aus­tria yes­ter­day. — AP

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