OPEC con­founds skep­tics, OK’ing 1st cuts in 8 years

The Denver Post - - BUSINESS - By Bloomberg News

OPEC con­founded its doubters and sent crude oil prices soar­ing by agree­ing to its first production cuts in eight years.

The deal, de­signed to drain record global oil in­ven­to­ries, over­came dis­agree­ments be­tween the group’s three largest pro­duc­ers — Saudi Ara­bia, Iran and Iraq — and ended a flir­ta­tion with free mar­kets that started in 2014. It was also broader than many had ex­pected, ex­tend­ing be­yond OPEC. Most strik­ingly, Rus­sia agreed to un­prece­dented cuts to its own out­put.

The im­pact on the en­ergy world was im­me­di­ate: bench­mark oil prices gained as much as 10 per­cent in New York and the share prices of en­ergy com­pa­nies around the globe jumped along­side the cur­ren­cies of large ex­porters. Whether that’s sus­tained will de­pend on how strictly mem­bers of the Or­ga­ni­za­tion of Petroleum Ex­port­ing Coun­tries stick to the agree­ment, some­thing they haven’t al­ways done in the past.

“This should be a wake-up call for skep­tics who have ar­gued the death of OPEC,” said Am­rita Sen, chief oil an­a­lyst at En­ergy As­pects Ltd. “The group wants to push in­ven­to­ries down.”

OPEC will re­duce out­put by about 1.2 mil­lion bar­rels a day by Jan­uary, the group said, ful­fill­ing a plan sketched out in Al­giers in Septem­ber to cut its production to 32.5 mil­lion bar­rels. The agree­ment ex­empted Nige­ria and Libya but gave Iraq its first quo­tas since the 1990s.

After weeks of of­ten-tense ne­go­ti­a­tions, the even­tual align­ment of OPEC’s big­gest pro­duc­ers points to the in­creas­ing dominance of Iran among the group’s top ranks. It’s al­lowed to raise out­put to about 3.8 mil­lion bar­rels a day, a vic­tory for a coun­try that’s long sought spe­cial treat­ment as it re­cov­ers from sanc­tions. Saudi Ara­bia pre­vi­ously pro­posed that its re­gional ri­val limit out­put to 3.707 mil­lion bar­rels a day, del­e­gates said.

The eco­nomics of the deal are “in­cred­i­bly ap­peal­ing,” Jeff Cur­rie, global head of com­modi­ties re­search at Gold­man Sachs Group Inc., said in an interview with Bloomberg Tele­vi­sion. The main aim of the cuts is “in­ven­tory nor­mal­iza­tion,” he said.

Across the U.S. shale path, the OPEC cut trig­gered a huge eq­uity rally. Whit­ing Petroleum Corp. rose as much as 32 per­cent — its big­gest one-day jump in 13 years — while Con­ti­nen­tal Re­sources Inc., the com­pany founded by Don­ald Trump’s ad­viser Harold Hamm, gained as much as 25 per­cent, the most since 2008.

Saudi Ara­bia, which raised oil production to a record this year, will re­duce out­put by 486,000 bar­rels a day to 10.058 mil­lion a day, an OPEC doc­u­ment shows. Iraq, OPEC’s se­cond-largest pro­ducer, agreed to cut by 210,000 bar­rels a day from Oc­to­ber lev­els. The coun­try had pre­vi­ously pushed for spe­cial con­sid­er­a­tion, cit­ing the ur­gency of its of­fen­sive against Islamic State.

The United Arab Emi­rates and Kuwait will re­duce out­put by 139,000 bar­rels a day and 131,000 a day, the doc­u­ment shows. Non-mem­ber Rus­sia, also pump­ing at a post-Soviet record, will cut by as much as 300,000 bar­rels a day, “con­di­tional on its tech­ni­cal abil­i­ties,” En­ergy Min­is­ter Alexan­der No­vak said in Moscow.

“What was an­nounced so far is bullish, but Jan­uary is still far away,” said Gio­vanni Staunovo, an an­a­lyst at UBS Group AG. “De­cem­ber will still see on­go­ing record production, but mar­ket par­tic­i­pants might ig­nore it. It does seem as though Rus­sia will cut, which if im­ple­mented is also pos­i­tive.”

The past two years have been painful for OPEC: The group will earn $341 bil­lion from oil ex­ports this year, ac­cord­ing to the U.S. En­ergy In­for­ma­tion Ad­min­is­tra­tion. That’s down from $753 bil­lion in 2014 be­fore prices crashed, and a record $920 bil­lion in 2012.

Mo­hammed Bin Saleh Al-Sada, Min­is­ter of En­ergy and In­dus­try of Qatar and pres­i­dent of the OPEC Con­fer­ence, left, talks with Mo­ham­mad Sanusi Barkindo, OPEC Sec­re­tary Gen­eral, of Nige­ria be­fore the start of Wed­nes­day’s meet­ing of OPEC in Vi­enna. Ron­ald Zak, The As­so­ci­ated Press

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.