Opec springs sur­prise, agrees to cut out­put

The Sun (Malaysia) - - SPEAK UP -

SIN­GA­PORE: The Or­gan­i­sa­tion of Petroleum Ex­port­ing Coun­tries (Opec) shocked mar­kets with a deal to cut oil out­put af­ter king­pin Saudi Ara­bia al­lowed bit­ter rival Iran to be ex­empted, but an­a­lysts warned yes­ter­day the move would not likely have a last­ing im­pact.

The car­tel’s an­nounce­ment of the first re­duc­tion in eight years sent crude prices surg­ing up to 6% on Wed­nes­day, while en­ergy firms in the US and Asia fol­lowed suit with huge gains.

At the end of six hours of ne­go­ti­a­tions and weeks of horse trad­ing, Opec an­nounced the plan to cut pro­duc­tion to 32.5-33 mil­lion bar­rels per day from the 33.47 mil­lion in Au­gust, the In­ter­na­tional En­ergy Agency said.

The deal, in Al­giers dur­ing an in­for­mal meet­ing with Rus­sia, was ham­mered out af­ter the group’s big­gest pro­ducer Saudi Ara­bia agreed Iran, which is ramp­ing up out­put af­ter years of Western eco­nomic sanc­tions, would be ex­empted from the cut.

“Opec made an ex­cep­tional de­ci­sion to­day ... af­ter two and a half years, Opec reached con­sen­sus to man­age the mar­ket,” said Ira­nian Oil Minister Bi­jan Zan­ganeh, who had re­peat­edly clashed with Saudi Ara­bia dur­ing past meet­ings.

“We have de­cided to de­crease the pro­duc­tion around 700,000 bpd,” he said.

The move would ef­fec­tively reestab­lish Opec pro­duc­tion ceil­ings aban­doned a year ago.

A Saudi-led ef­fort to freeze out­put col­lapsed in April af­ter Iran re­fused to par­tic­i­pate in a re­duc­tion.

“It is Saudi Ara­bia who has clearly blinked first, al­low­ing Iran, its main rival, to ramp up pro­duc­tion,” said Jef­frey Hal­ley, se­nior mar­ket an­a­lyst at OANDA.

“We shouldn’t un­der­es­ti­mate the ma­jor shift by Saudi Ara­bia,” he told AFP. “These two don’t see eye to eye on any­thing so this is a huge con­ces­sion by Saudi Ara­bia to ‘lu­bri­cate’ the process.”

Saudi Ara­bia and Iran are at odds over an ar­ray of is­sues in­clud­ing the wars in Syria and Ye­men.

But an­a­lysts said eco­nomic pres­sure from fall­ing oil rev­enues pushed Opec mem­bers to reach a deal, while oth­ers warned the oil car­tel has a poor track record of ful­fill­ing such com­mit­ments, and traders are not sure if Saudi-Iran co­op­er­a­tion would hold.

Details, in­clud­ing which coun­tries make which cuts, will be worked out when 14-mem­ber Opec – which pro­duces about 40% of the world’s crude – holds its next twice-yearly meet­ing in Vi­enna on Nov 30.

An­a­lysts said the mar­ket is likely to be cau­tious un­til the details of the deal are worked out, while traders will also be watch­ing whether non-Opec pro­duc­ers will also make cuts.

Oil prices rose nearly 2% yes­ter­day, ex­tend­ing their rally on op­ti­mism over Opec’s out­put cut plan. Ear­lier in the day, prices were down, with crude fu­tures re­treat­ing from their 6% surge on Wed­nes­day, the big­gest in a day since April. A steady dol­lar and weak US stock mar­ket also lim­ited some of the up­side in oil in early trad­ing.

Brent crude was up 80 cents, or 1.6%, at US$49.49 by 1548 GMT. Brent hit a ses­sion peak at US$49.50, the high­est since Sept 9, af­ter fall­ing to US$47.99 ear­lier.

US West Texas In­ter­me­di­ate crude rose 85 cents, or 1.8%, to US$47.90. The con­tract hit a one-month high of US$48.02, af­ter a ses­sion low at US$46.60. – AFP, Reuters


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