Gulf News

Opec set to cut out­put at Vi­enna meet­ing as oil prices slide

An­a­lysts ex­pect a cut of 1m bar­rels a day to re­bal­ance oil mar­kets

- BY FAREED RAH­MAN Se­nior Re­porter

Oil-pro­duc­ing coun­tries meet­ing to­day at a cru­cial sum­mit in Vi­enna are ex­pected to cut pro­duc­tion by at least 1 mil­lion bar­rels a day to re­bal­ance mar­kets, an­a­lysts told Gulf News.

The meet­ing takes place as prices slide due to record pro­duc­tion from Saudi Ara­bia, Rus­sia and other coun­tries and con­cerns per­tain­ing to global eco­nomic growth.

“I ex­pect Opec mem­bers plus Rus­sia to agree this Thurs­day on [a] to­tal crude oil pro­duc­tion cut of 1 mil­lion bar­rels a day from the Novem­ber 2018 lev­els. Such an agree­ment could be ef­fec­tive in early 2019,” Gar­bis Ira­dian, chief econ­o­mist for the Mena re­gion at the Wash­ing­ton-based In­sti­tute of In­ter­na­tional Fi­nance (IIF), told Gulf News.

Saudi Ara­bia could cut pro­duc­tion by 500,000 bpd, Rus­sia by about 150,000 bpd and the UAE by 150,000 bpd, he said adding that other coun­tries like Kuwait and Iraq could also cut out­put to sup­port oil prices.

‘Mod­est in­crease’

“The agree­ment would lead to a mod­est in­crease in Brent oil prices to the range of $65-$70 [Dh238-254] per bar­rel. We at the IIF are still work­ing with an av­er­age Brent oil price of $67 per bar­rel for 2019,” he said. Ira­dian also said that Brent oil be­tween $65 Oil re­treated af­ter the big­gest two-day gain since June as in­vestors grap­ple with doubts over whether the Or­gan­i­sa­tion of Pe­tro­leum Ex­port­ing Coun­tries (Opec) and its al­lies will curb pro­duc­tion.

Fu­tures slipped as much as 2.1 per cent in New York, par­ing gains of 4.6 per cent in the pre­vi­ous two ses­sions. West Texas In­ter­me­di­ate (WTI) for Jan­uary de­liv­ery dropped as much as $1.09 to $52.16 a bar­rel on the New York Mer­can­tile Ex­change, and was at $52.34 at 2.05pm in Seoul. Fu­tures closed at $53.25, up 30 cents, on Tues­day. To­tal vol­ume traded was about 76 per cent above the 100-day av­er­age.

Brent for Fe­bru­ary set­tle­ment fell $1.16 to $60.92 a bar­rel on Lon­don’s ICE Fu­tures Europe ex­change, af­ter ris­ing 39 cents on Tues­day. The global bench­mark crude was at an $8.38 premium to WTI for the same month. and $70 per bar­rel could be ac­cept­able to Saudi Ara­bia, Rus­sia and the US.

Saudi Ara­bia’s fis­cal breakeven price of oil that would bal­ance its 2019 bud­get is about $80 per bar­rel and with an av­er­age oil price of $67 per bar­rel the fis­cal deficit would be around 5 per cent in 2019.

“Such a deficit is man­age­able and could be eas­ily fi­nanced from tap­ping the in­ter­na­tional mar­ket and is­su­ing do­mes­tic bonds given the king­dom’s rel­a­tively low pub­lic debt of around 20 per cent of GDP and [its] still large for­eign as­sets.”

On the other hand, Rus­sia’s fis­cal breakeven oil price that would bal­ance the fed­eral bud­get for 2019 is $58 per bar­rel and with an av­er­age oil price of $67 per bar­rel Rus­sia would reg­is­ter a fis­cal sur­plus of 1.8 per cent of GDP, he added.

In sim­i­lar com­ments, Eh­san Khoman, head of Mena Re­search and Strat­egy at MUFG Bank Ltd, said Opec and its al­lies are likely to favour sup­port­ing prices over mar­ket share and will col­lec­tively act by cut­ting pro­duc­tion by 1-14 mil­lion bpd.

He, how­ever, said US Pres­i­dent Don­ald Trump’s stance on lower oil prices will be a sig­nif­i­cant ob­sta­cle to any pro­duc­tion cuts agree­ment in Vi­enna.

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