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
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.
“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.