ALL EYES ON OPEC
Oil-producing nations meet Thursday to discuss imposing a new cap on production,
Oil closed near $49 (U.S.) a barrel in New York as OPEC delegates said the group would be discussing the reintroduction of output ceilings at Thursday’s meeting in Vienna.
West Texas Intermediate was little changed after rising 6.9 per cent in May, as supply was curbed by wildfires in Alberta and militant attacks in Nigeria.
The Organization of Petroleum Exporting Countries is considering a production cap, along with other proposals. Any deal would be a signal of group unity but unlikely to affect actual production, delegates said.
“Nobody thought they would do anything this week, so the introduction of a target is a big deal,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “The introduction of a quota would be the first time in a year and a half that they have done anything that hints at production restraint.”
Oil in New York has surged about 85 per cent since touching the lowest level since May 2003 in February, on signs the global surplus is easing. OPEC will probably stick to its policy of squeezing out rivals by maintaining production, as the price rally helps justify the group’s strategy, according to analysts surveyed by Bloomberg.
Saudi Arabia will use this week’s meeting to repair relationships with fellow producers, after the failure of an April accord to freeze crude output in Doha, according to the people familiar with the matter. The kingdom’s Minister of Energy Khalid AlFalih will reassure other members his nation won’t flood the oil market, the people said.
The global oversupply that sent prices tumbling in 2014 and 2015 is correcting itself, United Arab Emirates Oil Minister Suhail Al Mazrouei said Tuesday after arriving in Vienna. “The market will fix itself to a price that is fair,” he said.
Nigeria’s minister of state for petroleum resources, Emmanuel Ibe Kachikwu, also said prices are moving “in the right direction.”
“I would call it a victory lap,” Jeff Currie, head of commodities research at Goldman Sachs, said. OPEC “successfully engineered a market that rebalanced on its own.”
Forecasters agree that the crude glut is starting to dwindle as the Saudi-led approach of pressuring highcost suppliers finally pays off.
There are still signs of division within OPEC, with Venezuelan Energy Minister Eulogio Del Pino saying the price recovery has had more to do with unexpected outages than a successful OPEC strategy.