05/26/2017, 14.48
SAUDI ARABIA – RUSSIA
Send to a friend

OPEC and non-OPEC countries close to a new nine-month deal

​Saudi Arabia and Russia get all 24 countries to agree. Production cuts will stay on until next March to boost prices. However, no long-term strategy appears to be in place to stabilise the market. Meanwhile, high cost US producers are grateful for higher prices that allow them back into the game.

Vienna (AsiaNews/Agencies) – The agreement between OPEC countries led by Saudi Arabia and non-OPEC nations led by Russia to reduce output has been extended by another nine months, starting on 1st July.

Curbs on production were put in place in November, when the Vienna-based 14-member oil exporters cartel agree to cut production by 1.2 million barrels a day, whilst non-OPEC countries accepted a reduction of 600,000 barrels.

The attempt to push up prices by reducing the amount of oil available in the market has had some good results but it cannot be taken for granted in the future. This is especially true since higher prices have revived US production, which has higher costs.

In fact, the new deal has not had the desired effect, as oil prices dropped below US$ 50 a barrel. The market seems to have already factored in the new extension agreed by Russia and Saudi Arabia. And an additional nine months cannot preclude that in March 2018 prices might fall below US$ 30 a barrel.

“What concerns me is that there is no clear messaging around the exit strategy,” said Ebele Kemery, head of energy investing at JPMorgan Asset Management.

“The way we look at the market going forward, there’s going to be oversupply in 2018. They’re talking about price stability,” she added. “To get price stability we need to know what the end-game is.”

Kemery’s concern over a lack of strategy appears to be widespread. Still, cuts did succeed in establishing a new floor for prices that is well above the lows seen last year.

Indeed, “OPEC is settling in for the long haul,’’ said Roger Diwan, an OPEC watcher at consultant IHS Markit Ltd in Washington. “I think we’ll remain between and a barrel for the time being.”

The agreement, which includes countries accounting for 60 per cent of the world’s oil production, has already delivered for national budgets from Moscow to Tehran, as higher prices outweighed lower production.

“This is a historic deal, it already was in November and now still more,” said Jan Stuart, chief energy economist at Credit Suisse Group AG. “Now we have more confidence of a 2017 rebalance.”

The last time both sides worked together was 15 years ago. Back then, the agreement fell apart soon after it was made. But for Alexander Novak, Russia’s energy minister, the relationship now between OPEC and non-members was at a “pivotal moment.”

This may shift though in 2018, said Ronald Smith, senior oil analyst at Citigroup Inc. in Moscow. It may not be in Vladimir Putin’s best interest to keep new oilfields on the shelf. The lost revenue would be felt mostly by state-owned Rosneft PJSC on projects scheduled to ramp up production in 2018 and 2019.

“Rosneft, the state-owned champion, will have invested a lot of money in these fields that will be sitting idle if they continue to extend the agreement,” Smith said. “At some point they may decide they need to take back some market share.”

Similarly, back in March, Saudi Oil Minister Khalid Al-Falih told an industry conference in Houston that the kingdom’s policy was to manage output “for a restricted period of time, with the aim of accelerating rebalancing, and then allowing the free market to work.”

"All the simulations that have been done by OPEC and non-OPEC experts . . . demonstrated that we will be within the five-year average in the first quarter of next year," Khalid al-Falih said.

TAGs
Send to a friend
Printable version
CLOSE X
See also
Both sport and healthy practice, yoga arrives in Saudi universities
09/03/2023 17:47
Executions doubled under 'reformist' bin Salman
01/02/2023 18:48
Saudi Arabia’s Camel Site is older than Giza and Stonehenge
18/09/2021 14:40
Mohammed bin Salman and Xi Jinping to work together on the Silk Road and against terrorism
22/02/2019 18:03
Riyadh to invest billions of dollars in the entertainment industry
23/01/2019 18:17


Newsletter

Subscribe to Asia News updates or change your preferences

Subscribe now
“L’Asia: ecco il nostro comune compito per il terzo millennio!” - Giovanni Paolo II, da “Alzatevi, andiamo”