SAUDI-RUSSIAN ‘BROMANCE’ BREAKUP MAY HURT OIL PRICES
Lack of decisive step by Opec, Russia seen triggering sell-off
ABU DHABI
THE Saudi- and Russialed supply limits that have lifted crude to a 2½-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 were assuming Organisation of the Petroleum Exporting Countries (Opec) and its allied producers would agree at the end of this month to extend the limits well beyond their March expiration, said Morse at a gathering of energy economists in Houston on Monday.
Morse characterised last year’s historic 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 would disappoint traders and trigger a massive unwinding of long positions in the futures market.
That included adopting halfmeasures, 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 sell-off.”
His remarks came hours after Opec Secretary-General Mohammad Barkindo gave assurances in Abu Dhabi that the worldwide oil market was re-balancing at a quickening pace and production cuts were the “only viable option” to restore stability.
Opec should decide at its meeting later this month whether or not to extend the cuts, said United Arab Emirates Energy Minister Suhail Al Mazrouei in a speech at a conference here.
Neighbouring Oman backed prolonging the output limits beyond March and saw producers extending them until the end of next year, said Oil Minister Mohammed Hamad Al Rumhy.
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 on Monday from the group.
Stockpiles have declined by more than 180 million barrels this year alone, said Barkindo. Reuters