Car­tel holds cards in oil mar­ket as prices hold

The Nation - - BUSINESS -

OPEC and its al­lies have re­gained some con­trol over the oil mar­ket as their pro­duc­tion lim­its have eroded the sup­ply glut that caused prices to plunge, but the In­ter­na­tional En­ergy Agency (IEA) warned yes­ter­day that fur­ther re­straint is needed if this bal­ance is to be main­tained. In its reg­u­lar monthly re­port, the said that global oil stocks are likely to dip in 2017 and should mostly be in bal­ance next year as­sum­ing un­changed Opec pro­duc­tion.

“A lot has been achieved to­wards sta­bil­is­ing the mar­ket, but to build on this suc­cess in 2018 will re­quire con­tin­ued dis­ci­pline,” said the IEA.

Global oil mar­kets have been roiled in re­cent years as the Opec oil car­tel aban­doned in 2014 its tra­di­tional role of sup­port­ing prices in an ef­fort to re­tain mar­ket share against up­start US oil shale pro­duc­ers.

Oil prices plunged from over $100 per bar­rel to un­der $30 last year, squeez­ing oil firms and wreak­ing havoc in the economies of oil pro­duc­ing coun­tries.

Late last year Opec and a num­ber of other pro­duc­ers led by Rus­sia agreed to throt­tle their out­put. The pact, which has now been extended through March 2018, has helped oil prices to climb back above $50 per bar­rel. The next few weeks ahead of the pro­duc­ers’ meet­ing in Vi­enna on Novem­ber 30 “will be cru­cial in shap­ing their de­ci­sion on out­put,” said the Paris-based IEA.

“But there is lit­tle doubt that lead­ing pro­duc­ers have re-com­mit­ted to do what­ever it takes to un­der­pin the mar­ket and to sup­port the long process of re-bal­anc­ing,” it added.

The IEA, which ad­vises the lead­ing en­ergy-con­sum­ing na­tions, noted the re­cent visit by King Sal­man to Moscow, the first by a Saudi monarch, where a num­ber of in­vest­ment deals were agreed and hints were dropped about fur­ther pro­duc­tion lim­its.

“For Saudi Ara­bia and Rus­sia, who worked to­gether to forge the Opec/non-Opec agree­ment, there is a strong eco­nomic in­cen­tive to sup­port oil prices by lim­it­ing sup­ply,” said the IEA. “For 2017 to date, Opec as a whole and Rus­sia have earned more while pump­ing less,” it added.

“Tak­ing 2018 as a whole, oil de­mand and non-Opec pro­duc­tion will grow by roughly the same vol­ume” said the IEA, which ex­pects global oil de­mand to grow by 1.6 mil­lion bar­rels per day (mbd) this year and 1.4 mbd in 2018.

The IEA added “it is this cur­rent out­look that might act as the ceil­ing for as­pi­ra­tions of higher oil prices”.

Opec said in its monthly re­port yes­ter­day that oil prices are ex­pected to re­main in the $50-55 per bar­rel range in the next year.

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