A RALLY in oil prices after a two-month slide indicates traders are betting that Organisation of the Petroleum Exporting Countries (OPEC) and its allies including Russia will agree to produce less crude.
Representatives of oil-producing nations will hold a highly anticipated meeting today in Vienna, with analysts predicting that they will agree on a cut of at least one million barrels a day in an effort to bolster prices.
Russian President Vladimir Putin boosted expectations for a deal when he said at the G20 summit over last weekend that Russia and Saudi Arabia have agreed to extend an attempt by OPEC to balance oil supply and demand — although he provided no figures.
Crude prices began falling in October and continued to plunge last month due to oversupply and fears that weaker global economic growth would dampen energy demand. The price of both benchmark US crude and the standard for internationally traded oil fell 22 per cent in November.
On Monday, however, oil prices rebounded by four per cent. On Tuesday, West Texas intermediate rose 30 cents to USD53.25 a barrel, while Brent international crude was up another 39 cents to USD62.08 a barrel in London.
Analysts attributed on Monday’s rally largely to a truce in the escalating trade dispute between the United States and China.
While details about a deal were scarce, it raised hopes that, with a cessation in further tit-for-tat tariffs, short-term economic growth and energy demand might be stronger than feared.
Also, the Alberta premier announced that the Canadian province will trim production by 8.7 per cent because a shortage of pipeline capacity has caused a glut of Canadian crude. Canada is the largest source of oil imported by the US.
Finally, Qatar said on Monday that it will leave OPEC in January.
Qatar is one of the smallest oil producers in OPEC, so its departure will have only a marginal impact on the cartel’s share of the world’s supply. Still, the surprising announcement by Qatar’s Energy Minister underscores the political tension within OPEC, “which doesn’t necessarily make it easier to come to a decision” on cutting production, said JBC Energy analyst David Wech.
Many of the OPEC energy ministers had not yet arrived in Vienna by Tuesday, but Iraqi Oil Minister Thamir Ghadhban showed up and was soon surrounded by reporters at his hotel. He said it was too early to say what might come out of this week’s meeting.
Some analysts expect OPEC and Russia will agree to even larger cuts, about 1.5 million barrels a day. Anything less, they say, could set the stage for continued global oversupply next year and send oil prices lower.
OPEC must produce “a credible agreement” to cut output by about 1.5 million barrels a day for oil prices to recover their recent losses, Credit Suisse analyst William Featherston wrote in a note on Monday. The Saudis, he said, will have to bear the largest share of cuts.
Saudi Arabia seems eager to reduce supply, Featherston said, but the kingdom’s decision is complicated by President Donald Trump’s desire for lower prices and the Saudis’ wish to improve relations with the US.
Trump blamed OPEC and Saudi Arabia earlier this year for high oil prices. When US crude skidded to USD54 on November 21, he tweeted, “Thank you to Saudi Arabia, but let’s go lower!” Trump might complain about cuts designed to send prices higher.
US producers have benefitted from higher prices. American output has soared since the price bust of 2014-15, and the US Energy Information Administration estimates that the US has eclipsed Russia and Saudi Arabia to become the world’s biggest producer. – AP