OPEC pushes production cuts to 2020

0
74


By Chris Paul Otaigbe


Against the rampaging rise in U.S. Shale (oil) output, the Organization of Petroleum Exporting Countries (OPEC) has opted to continue with its current production quota for another nine months.


This was made known by the Saudi Oil Minister Khalid Al-Falih at the press conference held after an OPEC meeting held recently.


Saudi Arabia, OPEC’s dominant producer, pledged to keep doing the heavy lifting as the cartel was all but forced to extend its effort to counter the U.S. shale boom into a fourth year.


The Saudi Oil Minister used the closing press conference to say the kingdom was willing to keep cutting more deeply than its quota requires.


Amrita Sen, chief oil analyst at Energy Aspects Ltd, said “This is a commitment to reduce inventories, and whatever it takes for them to do it.” The Saudis are likely to keep production at around 10 million barrels a day — below their target — and “if required after nine months, they will continue with the deal.”


Back in 2016, Al-Falih, had suggested supply reductions by Saudi Arabia, Russia and other producers in the OPEC+ coalition would only be needed for six months. But today, he appears increasingly bogged down in a struggle to wrest control of the global oil market from the U.S. shale industry. He expects to win, but conceded it will take a long time.


Addressing reporters at OPEC’s Vienna headquarters, he said he has no doubt in his mind that U.S. shale will peak, plateau and then decline like every other basin in history.


Until it does, I think it’s prudent for those of us who have a lot at stake, and also for us who want to protect the global economy and provide visibility going forward, to keep adjusting to it.”


OPEC could be in for a decade long fight. U.S. shale output will keep growing until the early 2030s, according to estimates from Rystad Energy A/S, an Oslo-based consultant that has been a staunch believer in the American energy boom since early this decade.


The long-term nature of Saudi Arabia’s commitment was also signaled by two other decisions during OPEC’s marathon meeting. First, making the cooperation with Russia and other countries in the OPEC+ coalition more formal by adopting a charter to govern the relationship. Second, setting a more ambitious target to reduce global stockpiles.


Saudi Arabia said it would measure the surplus of crude inventories against the 2010-2014 average rather than over the last five years average. That would mean draining an additional 160 million barrels from the world’s oil tanks, based on calculation by Bloomberg News. Russia promised to study the Saudi proposal.


“Inventories have gone out of our hands the last few months,” Al-Falih said “It’s unfortunate but they did.”


The initial reaction to OPEC’s decision was modest, suggesting investors remain worried about the outlook for global oil demand during the rest of the year and into 2020. Brent crude was up 0.3% at $65.24 a barrel at 8:05 a.m. in London on Tuesday. That’s about 2% below the closing price on Friday, before the cuts extension was announced.


The decision to extend production curbs through next March comes as the International Energy Agency and other market watchers peg back forecasts for demand amid sluggish growth in China and India. But Al-Falih said concern about slowing oil demand was overdone, especially after China and the U.S. agreed on a trade war truce at the G-20 summit in Osaka.


Although the deal was adopted unanimously, the day wasn’t without drama.


The OPEC members quickly settled on extending their output cuts, but the talks dragged on for hours longer than anticipated amid wrangling between Iran and other countries over the details of the charter enshrining the OPEC+ alliance.


Since OPEC joined forces in 2016 with other producers including Russia, Kazakhstan and Mexico, they have sought to establish an enduring basis for cooperation. But Iran has voiced unhappiness with the dominance that non-member Russia — not to mention regional rival Saudi Arabia — exert over OPEC policy.


Iranian Oil Minister Bijan Namdar Zanganeh said the dispute was resolved by making sure the charter doesn’t change OPEC’s decision-making process, and giving national governments the right to approve the document.


Monday’s decision on production will be ratified by the full group of OPECs+ countries at another meeting in Vienna today.


Ministers are likely to insist the end is in sight but based on past experience, oil traders may be skeptical that the cuts will come to an end any time soon. In late 2016, the group announced the cuts would last just six months. Then in mid-2017, it prolonged the cuts by nine months, only to extend them by a further nine months at its next meeting.

































LEAVE A REPLY

Please enter your comment!
Please enter your name here