OPEC Mulls 2019 Oil Pro­duc­tion Cuts in New U-Turn


LON­DON (Dis­patches) - The wind has changed again in a stormy oil mar­ket as OPEC sig­naled it will con­sider a re­turn to cut­ting out­put next year, po­ten­tially mak­ing the sec­ond pro­duc­tion U-turn this year.

Amid a sum­mer of ris­ing prices and un­prece­dented po­lit­i­cal pres­sure from Pres­i­dent Don­ald Trump, Saudi Ara­bia, Rus­sia and other pro­duc­ers had opened the taps. Now, with the U.S. midterm elec­tions over and crude fu­tures wilt­ing in the face of an­other his­toric shale oil surge, the car­tel will dis­cuss a change of course this week­end.

“The mes­sage from OPEC looks like: fas­ten the seat belts,” said Bob McNally, pres­i­dent of Rap­i­dan En­ergy Ad­vi­sors, a con­sul­tant in Wash­ing­ton. The car­tel looks sets to “put pedal to the metal to boost pro­duc­tion, and then im­me­di­ately slam the brakes pretty hard and talk about cut­ting sup­ply.”

Min­is­ters from the Or­ga­ni­za­tion of Pe­tro­leum Ex­port­ing Coun­tries and its al­lies will meet in Abu Dhabi on Sun­day and dis­cuss sce­nar­ios in­clud­ing the pos­si­bil­ity of cut­ting pro­duc­tion again next year, ac­cord­ing to del­e­gates. Some mem­bers are con­cerned that in­ven­to­ries are ris­ing, they said, ask­ing not to be named be­cause the dis­cus­sions are pri­vate.

If the group, led by Saudi Ara­bia, does ul­ti­mately de­cide fresh cut­backs are nec­es­sary, there are a num­ber of chal­lenges. It will need to once again se­cure the sup­port of ri­val-turned-part­ner Rus­sia, which has less need for high oil prices. There’s also the risk of an­tag­o­niz­ing Trump, who re­peat­edly ac­cused the group on Twit­ter of in­flat­ing prices.

An­other re­ver­sal would seem to be a far cry from the usual OPEC mantra of pre­serv­ing sta­bil­ity and care­ful mar­ket stew­ard­ship. Yet it does re­flect the level of un­cer­tainty in a mar­ket ex­pe­ri­enc­ing huge shifts in sup­ply and de­mand.

Ear­lier in the sum­mer, prices be­gan to surge as the risk of pro­duc­tion short­falls from sanc­tions on Iran and Venezuela’s eco­nomic col­lapse rat­tled the mar­ket. Losses from those two OPEC mem­bers threat­ened the big­gest sup­ply dis­rup­tion since the start of the decade and Brent crude even­tu­ally peaked above $86 a bar­rel last month.

Since then, big things have hap­pened on the other side of the sup­ply equa­tion. OPEC has been in “pro­duce as much as you can mode” to re­as­sure con­sumers, ac­cord­ing to Saudi En­ergy Min­is­ter Khalid Al-Falih. The king­dom has lifted out­put close to record lev­els, while Libya is pump­ing the most in five years. Un­ex­pected waivers for buy­ers of Ira­nian crude have blunted the im­pact of U.S. sanc­tions.

Then there’s the small mat­ter of Amer­i­can pro­duc­tion grow­ing at the fastest rate in a cen­tury, just as fuel de­mand is at risk from the slow­down in emerg­ing economies and the U.S.-China trade war.

Crude prices al­ready re­flect a much weaker out­look for 2019. Brent for Jan­uary de­liv­ery has re­treated about 15 per­cent from a four-year high reached in early Oc­to­ber.

The meet­ing this week­end of the Joint Min­is­te­rial Mon­i­tor­ing Com­mit­tee, a six-na­tion body rep­re­sent­ing the broader 25-coun­try coali­tion, is in­tended as just an in­terim re­view be­fore all min­is­ters dis­cuss pol­icy next month in Vi­enna. Still, it could give a strong sig­nal of what’s to come.

There’s a lot to con­sider be­fore the fi­nal de­ci­sion in De­cem­ber. U.S. sanc­tions could end up squeez­ing Ira­nian out­put so much that other pro­duc­ers won’t need to cut. Although Wash­ing­ton granted some of Iran’s cus­tomers tem­po­rary waivers that let them keep buy­ing, the Trump ad­min­is­tra­tion has said re­peat­edly it in­tends to en­tirely choke off the coun­try’s en­ergy rev­enues.

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