US-CHINA TRADE WAR SET TO TOP THE AGENDA AT OPEC MEET­ING

▶ On­go­ing dis­pute the ‘big­gest chal­lenge’ at an­nual gath­er­ing be­cause of knock-on ef­fect on oil mar­kets

The National - News - - BUSINESS - JEN­NIFER GNANA

Opec and its al­lies – set to meet in Vi­enna this week – are likely to keep pro­duc­tion curbs at their ex­ist­ing levels well into the sec­ond half of next year, with com­pli­ance rather than a deep­en­ing of cuts on the agenda, ac­cord­ing to an­a­lysts.

The al­liance, led by Saudi Ara­bia and Rus­sia, will gather for Opec’s an­nual meet­ing to­mor­row amid ris­ing in­sta­bil­ity for ma­jor pro­duc­ers Iraq and Iran.

Mem­bers of the al­liance have been cut­ting back 1.2 mil­lion bar­rels per day from the mar­kets since the be­gin­ning of the year, with the agree­ment ex­pected to hold un­til March.

The group faces sev­eral chal­lenges in­clud­ing the con­tin­ued dom­i­nance of US shale, which is set to reach 13 mil­lion bpd of pro­duc­tion by the end of the year, as well as slow­ing de­mand for crude glob­ally.

“The Opec+ min­is­ters will be fly­ing blind when it comes to fac­tor­ing in global oil de­mand, thanks to the un­pre­dictabil­ity of the course of the US-China trade war,” said Van­dana Hari, founder and chief ex­ec­u­tive of Vanda In­sights in Sin­ga­pore.

“That will be their big­gest chal­lenge in this week’s meet­ing.” Oil prices have largely re­mained tepid this year with the trade dis­pute be­tween the US and China weigh­ing heav­ily on de­mand. Prices have re­mained in the $60 range in spite of at­tacks on tankers tran­sit­ing the Strait of Hor­muz over the sum­mer as well as an at­tack on Saudi Aramco’s fa­cil­i­ties in Septem­ber, which tem­po­rar­ily wiped out 5 per cent of global sup­ply.

Mean­while, Iraq, Opec’s sec­ond-largest pro­ducer, sig­nalled deeper cuts ahead of the meet­ing.

Cur­rent re­stric­tions could be deep­ened by an ad­di­tional 400,000 bpd, said Iraqi oil min­is­ter Thamir Ghad­hban.

Prices re­acted pos­i­tively with Brent up 2.15 per cent, trad­ing at $61.79 per bar­rel at 4.51pm UAE time, while West Texas In­ter­me­di­ate was up 1.22 per cent at $56.39 per bar­rel.

The Iraqi min­is­ter’s com­ments sur­prised the mar­kets as the coun­try and West African pro­ducer Nige­ria have re­peat­edly pro­duced above their quo­tas.

Opec+ would look to em­pha­sise stricter com­pli­ance with the cur­rent deal and keep the cuts “un­changed”, said Giovanni Staunovo, com­mod­ity an­a­lyst at Swiss bank UBS.

“If com­pli­ance lag­gards [eg Iraq, Nige­ria] im­prove their com­pli­ance, it still could re­sult in lower Opec pro­duc­tion. Hence, I ex­pect the group to em­pha­sise that the coun­tries with weak com­pli­ance rates have pledged to im­prove them in the fu­ture,” he said.

The group is likely to con­tinue the cuts un­til March, he added, ob­serv­ing that Rus­sia, the big­gest pro­ducer within the al­liance, is likely to op­pose deeper cuts and fur­ther ex­ten­sion.

Fu­ture cuts should be ne­go­ti­ated closer to the sec­ond half of the year, Rus­sia’s en­ergy min­is­ter Alexan­der No­vak said last week, ob­serv­ing that mar­ket con­di­tions may be vastly dif­fer­ent by the time the agre­ment ex­pires on April 1.

“The re­marks by Rus­sian en­ergy min­is­ter No­vak last Fri­day and his Iraqi coun­ter­part Ghad­hban over the week­end have set out the bound­aries of the range of op­tions Opec and its al­lies have in front of them,” said Ms Hari.

A con­sen­sus could fall within the broad range of the spec­trum set by both coun­tries with Opec+ likely to ar­rive at ex­tend­ing the cur­rent level of cuts to June next year, she added.

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