Oil above $44 on pos­si­ble pro­duc­tion cap

Ex­emp­tion from global cap may be re­voked af­ter their pro­duc­tion climbs

The Star Early Edition - - BUSINESS REPORT - Wael Mahdi and Rak­teem Katakey

OIL HOV­ERED above $44 (R588.36) a bar­rel as the mar­ket weighed the like­li­hood and po­ten­tial ef­fec­tive­ness of Libya and Nige­ria cap­ping pro­duc­tion. In­vestor scep­ti­cism over whether Libya and Nige­ria will agree to limit sup­plies kept fu­tures trad­ing in a $1.19 range in New York. BNP Paribas re­duced its price fore­casts for this year and next be­cause sup­ply growth else­where is di­lut­ing the im­pact of the curbs led byOpec. The pos­si­bil­ity of Libya and Nige­ria agree­ing to pro­duc­tion caps is giv­ing in­vestors more hope that prices may rise, al­though the un­cer­tainty is caus­ing “a see-saw ef­fect”, Michael Lynch, pres­i­dent of Strate­gic En­ergy & Eco­nomic Re­search in Winch­ester, Mas­sachusetts, said. “Peo­ple are wor­ried that it could turn out to be a pro­longed af­fair get­ting them to the ta­ble to sign off on some­thing.” Oil has traded be­low $50 a bar­rel since May in New York amid con­cerns that el­e­vated global oil in­ven­to­ries and rising out­put from the US and other pro­duc­ers will off­set cuts by Opec and its part­ners. West Texas In­ter­me­di­ate for Au­gust de­liv­ery rose 38 cents to $44.61 a bar­rel at 12.10pm on the New York Mer­can­tile Ex­change. To­tal vol­ume traded was about 15 per­cent above the 100-day av­er­age. Prices fell $1.29, or 2.8 per­cent, to $44.23 on Fri­day.

LIBYA and Nige­ria, which had both boosted oil pro­duc­tion since they were ex­empt from global cuts this year, might be asked to cap their crude out­put soon in an ef­fort to help re-bal­ance the mar­ket, Kuwait Oil Min­is­ter Is­sam Al­mar­zooq said.

Mem­bers and non-mem­bers of Opec had in­vited the two na­tions to their com­mit­tee meet­ing in St Peters­burg, Rus­sia, this month to dis­cuss the sta­bil­ity of their pro­duc­tion, Al­mar­zooq said on the side­lines of an en­ergy conference in Istanbul, Turkey.

Al­mar­zooq is the chair­per­son of the com­mit­tee mon­i­tor­ing the com­pli­ance of Opec and non-Opec sup­pli­ers with out­put cuts that started in Jan­uary and have been ex­tended to March.

Pro­duc­tion

“We in­vited them to dis­cuss the sit­u­a­tion of their pro­duc­tion,” Al­mar­zooq said. “If they are able to sta­bilise their pro­duc­tion at current lev­els, we will ask them to cap as soon as pos­si­ble.

“We don’t need to wait un­til the Novem­ber meet­ing to do that,” he said, re­fer­ring to the up­com­ing Opec meet­ing sched­uled for Novem­ber.

Crude sank into bear ter­ri­tory last month amid con­cerns the cut­backs by Opec pro­duc­ers, Rus­sia and other al­lies are be­ing par­tially off­set by a re­bound in sup­ply by Libya, Nige­ria and US shale out­put. Libya and Nige­ria were both ex­empt from the cuts be­cause of their in­ter­nal strife.

The two coun­tries came into fo­cus af­ter they seemed to re­solve some of the po­lit­i­cal chal­lenges that had slashed their pro­duc­tion.

Libya’s oil out­put has climbed to more than 1 mil­lion bar­rels a day for the first time in four years. Nige­ria’s

Libya’s oil out­put has climbed to more than 1 mil­lion bar­rels a day for the first time in four years.

pro­duc­tion rose 50 000 bar­rels a day last month, ac­cord­ing to a sur­vey.

“Cap­ping Libya and Nige­ria might help, but won’t cut the sup­ply by much,” Ab­dul­samad Al-Awadhi, a Lon­don-based an­a­lyst and Kuwait’s for­mer rep­re­sen­ta­tive to Opec, said yes­ter­day.

“Opec needs to have bet­ter com­pli­ance, and it must re­spect the right of Libya and Nige­ria to go back to the mar­ket. Other coun­tries that raised out­put while Libya and Nige­ria are out should do more and give space to these two coun­tries to go back to the mar­ket.”

Al­mar­zooq said he saw the oil mar­ket mov­ing in the right di­rec­tion. Growth in the num­ber of op­er­a­tional oil rigs had started to slow, and crude in­ven­to­ries were de­clin­ing.

Bench­mark Brent crude, which has fallen 17 per­cent this year, gained as much as 47 cents yes­ter­day in Lon­don and was trad­ing at $46.94 (R627.68) a bar­rel at 7.24am lo­cal time.

Out­put at older oil fields from China to North Amer­ica – com­pris­ing a third of world sup­ply – fell 5.7 per­cent last year, the most since 1992, ac­cord­ing to Rys­tad En­ergy. It would drop about 6 per­cent this year if oil stays at current prices, the con­sul­tant said. US crude drillers in­creased the rig count last week by seven to 763, Baker Hughes said on Fri­day.

Joint de­ci­sion

Giv­ing Libya and Nige­ria ex­emp­tions to pro­duc­tion cuts was a col­lec­tive de­ci­sion, and any pro­posal to in­clude them in Opec’s plans would also re­quire a joint de­ci­sion, sec­re­tary-gen­eral Mo­hammed Barkindo said at the event in Istanbul.

He said it was still too early to dis­cuss steeper cuts by the group and its al­lies.

The Opec/non-Opec min­is­te­rial mon­i­tor­ing com­mit­tee would dis­cuss the im­pact of the out­put curbs on the mar­ket at the July 24 meet­ing, Al­mar­zooq said. Deep­en­ing the re­duc­tions un­der the current agree­ment is not on the agenda, he said.

“It is too early to dis­cuss deeper out­put cuts by Opec/ non-Opec pro­duc­ers par­tic­i­pat­ing in the agree­ment to curb pro­duc­tion,” Al­mar­zooq said. “We just fin­ished the meet­ing in May, and we need to give it more time.”

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