OPEC cut ex­ceeds ex­pec­ta­tions af­ter marathon talks

The Daily Star (Lebanon) - - BUSINESS - By Javier Blas, Elena Mazneva and Grant Smith

OPEC fi­nally broke an im­passe over pro­duc­tion curbs, agree­ing on a larger-than-ex­pected cut with al­lies af­ter two days of frac­tious ne­go­ti­a­tions in Vienna.

The car­tel and its partners agreed to re­move 1.2 mil­lion bar­rels a day from the mar­ket, with OPEC it­self shoul­der­ing 800,000 bar­rels of the bur­den. Iran emerged as a win­ner from the con­tentious talks, say­ing it’s se­cured an ex­emp­tion from cuts as it suf­fers the ef­fects of U.S. sanc­tions.

Crude surged as much as 5.8 per­cent in Lon­don, raising the risk that the deal could anger U.S. Pres­i­dent Don­ald Trump, who had urged the group to keep the taps open and prices low.

The break­through at the Or­ga­ni­za­tion of the Petroleum Ex­port­ing Coun­tries’ sec­re­tar­iat fol­lowed a se­ries of bi­lat­eral meet­ings con­vened by non-OPEC mem­ber Rus­sia, which emerged as the key bro­ker be­tween archri­vals Saudi Ara­bia and Iran. OPEC has been un­der in­creas­ing pres­sure from forces re­draw­ing the global oil map, leav­ing it ev­er­more de­pen­dent on Rus­sia’s sup­port while also sub­ject to ve­he­ment op­po­si­tion from Trump.

The fi­nal deal is a sur­prise, since dis­cus­sions had ear­lier cen­tered on a pro­posed out­put re­duc­tion from OPEC and its al­lies of about 1 mil­lion bar­rels a day, with OPEC cut­ting 650,000 bar­rels of the to­tal, ac­cord­ing to del­e­gates.

“Given how much ex­pec­ta­tions were down­played around the out­come of this meet­ing, this re­sult comes as a wel­come sur­prise,” said Harry Tchilin­guirian, head of com­mod­ity-mar­kets strat­egy at BNP Paribas. “OPEC has given the oil mar­ket a rud­der that ap­peared largely ab­sent yesterday.”

Pro­duc­ers will use Oc­to­ber out­put lev­els as a base­line for cuts and the agree­ment will be re­viewed in April. Rus­sia has pro­posed a con­tri­bu­tion equiv­a­lent to a 2 per­cent re­duc­tion from that month, ac­cord­ing to one del­e­gate, who said fig­ures are still un­der dis­cus­sion. Such a cut would equate to 228,000 bar­rels a day, Bloomberg cal­cu­la­tions show, higher than its ini­tial pitch for no more than 150,000 bar­rels a day.

“I’m con­fi­dent that our re­solve, that our pro­fes­sion­al­ism and our will­ing­ness to achieve re­sults is as strong as ever,” Rus­sian En­ergy Minister Alexan­der No­vak said of the so-called OPEC coali­tion. “In cur­rent con­di­tions it’s ex­tremely im­por­tant to send a strong sig­nal to the mar­ket.”

Much has changed for OPEC since 2016, when Rus­sia and Saudi Ara­bia ended their his­toric an­i­mos­ity and be­gan man­ag­ing the mar­ket to­gether. The al­liance has con­verted the car­tel into a du­op­oly in which the Krem­lin is assert­ing its power.

“OPEC, or more pre­cisely Saudi Ara­bia, has been the head hon­cho of the oil world for nearly six decades; yet these days it seems un­able to make a de­ci­sion with­out Rus­sia’s bless­ing, let alone with­out risk­ing the wrath of the U.S. pres­i­dent,” said Stephen Bren­nock, an an­a­lyst at PVM Oil As­so­ciates Ltd. in Lon­don.

OPEC’s largest pro­ducer Saudi Ara­bia, un­der eco­nomic pres­sure af­ter a col­lapse in oil prices last month, has sought to walk a fine line be­tween pre­vent­ing a sur­plus next year and ap­peas­ing Trump. The pres­i­dent has taken to us­ing his Twit­ter ac­count to be­rate the group’s poli­cies and sees low oil prices as key to sus­tain­ing Amer­ica’s eco­nomic growth. While min­is­ters met Wed­nes­day, Trump tweeted that the “world does not want to see, or need, higher oil prices!”

He’s yet to give his view of the OPEC agree­ment. Benchmark Brent crude traded up 4.8 per­cent at $62.93 a bar­rel at 3:22 p.m. Lon­don time.

OPEC’s pres­sure from forces re­draw­ing global oil map has left them ev­er­more de­pen­dent on Rus­sia’s sup­port while also sub­ject to Trump’s op­po­si­tion

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