Tuesday, 18 December, 2018

What to Expect From the OPEC Meeting

Crude Oil Crude Oil
Orlando Vargas | 22 June, 2018, 15:28

Iran's oil minister walked out of a key meeting with OPEC peers on Thursday, as a rift deepened with regional rival Saudi over its push to ramp up the cartel's oil output.

Saudi Energy Minister Khalid al-Falih has signalled a compromise was in the works as a big hike in production was "politically unacceptable" to some members. "What actually is delivered to the market is going to be a smaller number".

The intensive negotiations between ministers in Vienna this week are the culmination of a process that has whipsawed oil markets for weeks.

The Saudi proposal involves a complex calculation based on how much the group has cut production beyond the initial target of 1.8 million barrels a day set in 2016, the delegates said, asking not be named discussing private meetings.

But OPEC was struggling to agree on raising output, with Saudi Arabia warning of supply shortages and price rallies and Iran holding out against a deal.

WTI crude oil prices ticked higher by 1.4 percent to $65.84/bbl on Wednesday following a drop in US commercial crude inventories this week, but all eyes will be on Vienna by the end of the week.

"The voice of the consumer is being heard in Vienna", Daniel Yergin, vice chairman of consultant IHS Markit Ltd., said in a Bloomberg television interview.

After almost two years of relative unity, the talks in Vienna this week have found Opec divided.

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UAE Energy Minister Suhail Mohammed al-Mazrouei added: "I am very optimistic". Benchmark 10-year notes last rose 8/32 in price to yield 2.8986 percent, from 2.928 percent late on Wednesday.

Saudi Arabia is reportedly looking to increase production by 1 million barrels per day, while Russian Federation has said it would like to see an extra 1.5 million barrels per day to the market before reassessing the next move. Their proposal would share out a quota increase of 1 million barrels a day between all members of the group. Outages in some nations and deeper-than-agreed cuts by others have made the actual reduction larger by about 1 million barrels a day.

"While China could secure the crude from alternative sources, such as West Africa which has a similar quality to United States crude, the USA would find it hard to find an alternative market that is as big as China", Suresh Sivanandam, senior manager, Asia refining, at Wood Mackenzie, said earlier this week, commenting on the impact of possible Chinese tariffs on U.S. oil imports.

Iran is usually not part of the committee, which includes Russia, Saudi Arabia, the United Arab Emirates, Oman, Kuwait, Algeria and Venezuela.

OPEC Secretary-General Mohammad Barkindo said he was confident there would be a deal when the producer group meets in Vienna on Friday. Meanwhile, production in the USA remains high.

Brent crude fell $1.69 to settle at $73.05 a barrel.

Falih has warned the world could face a supply deficit of up to 1.8 million bpd in the second half of 2018 and that Opec's responsibility was to address consumers' worries. "One thing you can be assured of is: we will be responsive, we will release supplies to make sure there's no shortage".

-With assistance from Salma El Wardany, Annmarie Hordern, Manus Cranny, Elena Mazneva, Laura Hurst, Javier Blas, Grant Smith, Francois de Beaupuy and Golnar Motevalli. All comments are subject to editorial review.

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