Lack of clarity hangs over Opec meet
Any postponement in deciding a supply-cut extension... can easily lead to unravelling of speculative length on futures and a price correction Harry Tchilinguirian, Head of commodity markets strategy at BNP Paribas
london — Fifteen days from now, nations that pump more than half the world’s oil gather in Vienna to discuss extending the production cuts that helped lift prices to two-year highs. The outcome is far from certain.
Russia, which alongside Saudi Arabia was the architect of the historic cooperation between crude producers, is said to be unconvinced that a decision is needed so soon before the deal expires at the end of March. While Opec secretary-general Mohammad Barkindo sees no opposition in principle to continuing the supply curbs, the extension could be as short as three months or as long as nine.
There’s good reason for doubts to creep into the deliberations. While forecasters agree that the production cuts have depleted bloated fuel stockpiles in recent months, there’s huge divergence in forecasts for 2018. Brent crude is finally trading above $60 a barrel, but it’s unclear whether that’s down to an improving market or the huge increase in speculative bets.
The Opec and Russia’s deal doesn’t expire for four months, but procrastinating in a volatile market with high expectations carries some risks. “Any postponement in deciding a supply-cut extension, or even a disappointment relative to the duration of an extension, can easily lead to unravelling of speculative length on futures and a price correction,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas.
Preparations for the November 30 meeting in the Austrian capital begin one week earlier, with a workshop to discuss the outlook for shale oil followed by the meeting of the Organisation of Petroleum Exporting Countries’ Economic Commission Board, said one delegate. This panel of representatives from member countries, which discusses the market before every ministerial meeting, will focus on forecasts for demand this winter, including consideration of the International Energy Agency’s estimate for weakerthan-expected fuel consumption, another delegate said.
Moscow meeting
Speculation has grown that the cuts would continue beyond expiry, potentially to the end of 2018, after Russian President Vladimir Putin signaled that he’s open to such a move. Yet, he also said there had been no decision in Moscow.
Russian Energy Minister Alexander Novak, who met with bosses of the nation’s major oil companies in Moscow on Wednesday, has previously said that there won’t necessarily be a decision this month whether to extend the cuts. It’s hard to see if such a move is needed so long before the deal’s expiry, he said on November 2. Moscow also dragged its feet at the Opec meeting a year ago, keeping the market guessing until the last moment about whether it would join the cuts. Cooperation with Opec is “fruitful,” Tatneft CEO Nail Maganov told reporters after the meeting with Novak. Market monitoring and discussions need to continue, said Gazprom Neft CEO Alexander Dyukov.
The leaders of Russia’s largest producers, who didn’t attend the meeting with Novak, have previously voiced concerns about extending the deal. Lukoil’s billionaire CEO Vagit Alekperov said last month that the deal should end if oil prices reach $60 a barrel. Rosneft boss Igor Sechin has warned that growing US shale output is undermining their efforts. — Bloomberg