Un­cer­tainty ahead of cru­cial OPEC meet­ing

The Myanmar Times - - Business -

MIXED sig­nals from OPEC min­is­ters caused fresh volatil­ity on oil mar­kets ahead of a meet­ing in Vi­enna to­day meant to nail down a deal re­duc­ing the car­tel’s out­put by up to a mil­lion bar­rels per day.

Saudi Ara­bia’s en­ergy min­is­ter ap­peared to sug­gest that Riyadh could live with OPEC fail­ing to agree its first cut in out­put in eight years, say­ing re­cov­er­ing de­mand would “sta­bilise” prices next year any­way.

“We don’t have a sin­gle path which is to cut production at the OPEC meet­ing, we can also de­pend on re­cov­ery in con­sump­tion, es­pe­cially from the US,” Saudi me­dia quoted Khaled al-Falih as say­ing.

But amid con­cerns that OPEC might not be able to reach an agree­ment after all, Rus­sian Pres­i­dent Vladimir Putin and his Ira­nian coun­ter­part Has­san Rouhani ex­pressed sup­port for plans by the car­tel to limit its out­put.

In a tele­phone con­ver­sa­tion, the Ira­nian and Rus­sian lead­ers said OPEC’s ef­forts were “an essen­tial el­e­ment” for re­turn­ing sta­bil­ity to global oil prices, a Krem­lin state­ment said.

But they stopped short of say­ing they would cut their own production lev­els next year.

Rus­sia, while not a mem­ber of OPEC, 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.

Iraqi Oil Min­is­ter Jab­bar alLuaibi mean­while sounded an up­beat note as he ar­rived in Vi­enna ahead of to­day’s meet­ing, say­ing he was “op­ti­mistic” that the 14-coun­try group would strike an ac­cord.

This was echoed by Venezuela’s sim­i­larly “op­ti­mistic” Oil Min­is­ter Eu­lo­gio del Pino as he ar­rived in Al­giers for talks with his Al­ge­rian coun­ter­part last week.

The two were due to head to Moscow to­gether to per­suade non-OPEC Rus­sia to also tighten the spig­ots. “OPEC and non-OPEC coun­tries must take ac­tion,” Mr del Pino was quoted by lo­cal news agency APS as say­ing on Novem­ber 26.

“Just as ev­ery­one in the mar­ket feared, there is in­tense volatil­ity,” said ETX Cap­i­tal an­a­lyst Neil Wil­son. “No one knows if an agree­ment to freeze out­put is just wish­ful think­ing or pretty nearly a done deal.”

In Septem­ber the car­tel agreed in prin­ci­ple to lower production to 32.5-33 mil­lion bpd, mean­ing a cut of be­tween 600,000 bpd and 1.1 mil­lion bpd from cur­rent lev­els.

In ad­di­tion it re­port­edly wants non-OPEC coun­tries to re­duce out­put by 600,000 bpd.

OPEC hopes this will re­duce the mam­moth global sup­ply glut and push the mar­ket price of oil above US$50 a bar­rel.

It also marks a re­ver­sal of OPEC king­pin Saudi Ara­bia’s two-yearold strat­egy of flood­ing the mar­ket to squeeze out ri­vals, in par­tic­u­lar US shale oil pro­duc­ers, which need a higher oil price to make a profit.

But it re­mains to be agreed what size cuts, if any, each of OPEC’s mem­bers will make, par­tic­u­larly Iraq and Iran, the car­tel’s next-big­gest pro­duc­ers. Libya and Nige­ria want to be ex­empted as well.

Iraq 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.

Iran, free to ex­port oil since last year’s nu­clear deal, won’t cut production un­til it has reached pre­sanc­tions lev­els. It is also a fierce re­gional ri­val of Saudi Ara­bia, en­gaged in a proxy war in Ye­men and back­ing dif­fer­ent sides in Syria.

If OPEC does man­age to get a deal and oil prices rise – though the in­crease may be mod­est – then this will hit the wal­lets of bil­lions of con­sumers world­wide, al­though on balance it could give the global econ­omy a fil­lip, ex­perts say.

Low oil prices have blown a mas­sive hole in pro­duc­ers’ fi­nances in re­cent years, hurt­ing not just more vul­ner­a­ble OPEC mem­bers like Venezuela and Nige­ria but even the rich Gulf states.

Saudi Ara­bia, once seen as fab­u­lously wealthy, is pro­ject­ing a bud­get deficit of $87 bil­lion in 2016. Low prices have also hit in­vest­ment in oil fa­cil­i­ties, rais­ing the prospect of sup­ply prob­lems in the medium term.

But, at the same time, the bad news for OPEC is that higher oil prices may also see more US shale oil pro­duc­ers re­turn to the mar­ket.

The US in­dus­try could also be given a help­ing hand by pres­i­den­t­elect Don­ald Trump.

Mr Trump has promised to elim­i­nate reg­u­la­tions re­strict­ing frack­ing, sup­port oil and gas pipe­line con­struc­tion and open re­stricted fed­eral lands and off­shore ar­eas for ex­plo­ration, in­clud­ing Alaska. –

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