Iran looms large over OPEC summit

Participants gather in the lobby ahead of an informal meeting between members of the Organization of Petroleum Exporting Countries, OPEC, in the Algerian capital Algiers. (AFP)
Updated 22 September 2018
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Iran looms large over OPEC summit

  • Saudi Arabia only country in Mideast, and perhaps world, with enough capacity to keep market supplied, say experts
  • At Algiers, Opec and leading non-Opec countries are expected to discuss how to allocate supply increases to offset a shortage of Iran supplies

LONDON: The Opec summit in Algiers on Sunday meets amid widespread fears of a supply crunch when a forecast 1.4 million barrels a day of crude is lost from Iran in November when US sanctions kick in.
If, on top of that, more supply shocks hit the market in worse-than-expected disruption from Libya and Iraq, the price of crude could surge, said Andy Critchlow, head of energy news at S&P Global Platts. “At the moment, the market looks finely balanced,” he said.
There isn’t a lot of slack in the system. As Critchlow points out: “Upstream investment in infrastructure and new wells is historically low and it will take a long time to turn that around.”
At Algiers, Opec and leading non-Opec countries are expected to discuss how to allocate supply increases to offset a shortage of Iran supplies. The gathering comes after a tweet by President Trump on Sept. 20 calling on Opec to lower prices. He said on Twitter that “they would not be safe for very long without us, and yet they continue to push for a higher and higher oil price.”
Critchlow reckoned KSA still had spare capacity of about 2 million bpd. And KSA would get oil back as they go into winter as it had needed 800,000m bpd merely to generate electricity for the home market to meet heightened demand for air conditioning in the summer.
But there is uncertainty about what will come out of Algiers. For a start, the Iranians say they will not attend. That could be tricky in terms of an Opec communique at the end of the meeting as statements need unanimous support from member nations. And Iran has indicated it will veto any move that would affect Iran’s position, ie, one where other countries absorb its market share as sanctions bite.
Jason Gammel, energy analyst at London broker Jefferies, said: “The magnitude of the drop in Iranian exports is likely to be higher than any hit in demand as a result of problems linked to emerging market currencies, or trade wars. That’s why we expect oil prices to continue to strengthen. The Saudis and their partners will keep the market well supplied, and I think the issue is that the level of spare capacity in the system will be extremely low. Any threat or interruption will mean price spikes. Possibly by the end of the year demand will exceed supply; for now, the market remains in balance, but threats of supply disruption will bring volatility.”
Under the spotlight in Algiers is a production cuts accord forged by Opec and 11 other countries in 2016 which has been extended to the end of this year. The agreement helped reboot prices and obliterate inventory stockpiles that led to the crash in crude prices nearly three years ago. But how long will the agreement last? Algiers may kick that one into the long grass.
Thomson Reuters analysts Ehsan Ul-Haq and Tom Kenison told Arab News: “OPEC members would like to maintain cohesion within the group around supply ahead of Iran sanctions and declining Venezuela production, However, they are expected be in favor of maintaining stability in prices while doing so. On the other hand, they need to find a consensus around how their market share would be affected by a decision to pump more oil in the market. Any decision around production will likely be offset until the November meeting.”
Critchlow said that it is what KSA and Russia say and do that matters. “They speak for a fifth of the global oil market, producing a combined total of 22m bpd.” Together, they are the swing producers when it comes to crude production and supply.
Another factor about Algiers is that it is a meeting of the Joint Ministerial Monitoring Committee, which is not a policy-making forum. Big policy statements may have to wait for the main Opec summit in Vienna at the end of year. That said, there will be some very high-level delegations in Algiers, including the Saudi oil minister and his Russian counterpart.
A statement about the demand picture could emerge, especially as there are fears about the impact on the global economy from the US-China tariff war.
Looking to the future, Critchlow thought the Opec production cuts accord would carry on into 2019. “Oil priced between $70/bbl and $80/bbl is a sweet spot for Middle East producers. Its’s good for Saudi as it helps stop further drainage of their foreign reserves and moves the budget back toward balance. Do they want (the price) to go higher? I think that would cause a lot of political problems for them.”


Oil prices rise on Libyan export interruption, but markets remain weak

Updated 11 December 2018
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Oil prices rise on Libyan export interruption, but markets remain weak

  • The rise came after crude prices dropped by 3 percent the session before amid ongoing weakness in global stock markets and concerns that slowing oil demand-growth could erode supply cuts
  • Crude futures have lost around a third of their value since early October amid the financial market slump and an emerging oil supply overhang

SINGAPORE: Oil prices edged up on Tuesday after Libya’s National Oil Company declared force majeure on exports from the El Sharara oilfield, which was seized at the weekend by a local militia group.
Despite that, overall sentiment on oil prices remained weak amid worries over global stock markets and doubts that planned supply cuts led by producer club OPEC will be enough to rein in oversupply.
International Brent crude oil futures were at $60.19 per barrel at 0336 GMT, up 19 cents, or 0.3 percent, from their last close.
US West Texas Intermediate (WTI) crude futures were at $51.16 per barrel, up 16 cents, or 0.3 percent.
Libya’s National Oil Company (NOC) late on Monday declared force majeure on exports from the El Sharara oilfield, the country’s biggest, which was seized at the weekend by a militia group.
NOC said the shutdown would result in a production loss of 315,000 barrels per day (bpd), and an additional loss of 73,000 bpd at the El Feel oilfield.
The rise came after crude prices dropped by 3 percent the session before amid ongoing weakness in global stock markets and concerns that slowing oil demand-growth could erode supply cuts announced last week by the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers including Russia.
Crude futures have lost around a third of their value since early October amid the financial market slump and an emerging oil supply overhang.
In a show of no confidence, money managers cut their bullish wagers on crude to the lowest in more than two years in the week ending Dec. 4, the US Commodity Futures Trading Commission (CFTC) said on Monday.
The financial speculator group cut its combined futures and options position in New York and London by 25,619 contracts to 144,775 during the period. That is the lowest level since Sept. 20, 2016.
In physical markets, Kuwait and Iran this week both reduced their January crude oil supply prices to Asia
“There remains a lot of uncertainty if the production cut is thick enough to make a significant dent in global supply,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.
“The general risk-off tone in global markets and the stronger dollar ... are contributing to the selling pressure.”
The OPEC-led group of oil producers last Friday announced a supply cut of 1.2 million barrels per day (bpd) in crude oil supply from January, measured against October 2018 output levels.