Oil surges after OPEC indicates it will maintain output cuts

OPEC, Russia and other non-member producers agreed to reduce output by 1.2 million barrels per day from January 1 for six months. (AFP)
Updated 20 May 2019

Oil surges after OPEC indicates it will maintain output cuts

  • There is consensus among OPEC and allied oil producers to drive down crude inventories ‘gently’
  • Another bullish signal was a second week of declines in US drilling operations

TOKYO: Oil rose to multi-week highs on Monday after OPEC indicated it will likely maintain production cuts that have helped support prices this year, while tensions continued to escalate in the Middle East.
Brent crude was up by 96 cents, or 1.3 percent, at $73.17 a barrel by 0227 GMT, having earlier touched $73.40, the highest since April 26.
US West Texas Intermediate crude was 82 cents, 1.3 percent, higher at $63.58 a barrel. The US benchmark reached $63.81 earlier, the highest since May 1.
Saudi Energy Minister Khalid Al-Falih said on Sunday there was consensus among the Organization of the Petroleum Exporting Countries (OPEC) and allied oil producers to drive down crude inventories “gently” but he would remain responsive to the needs of a “fragile market.”
United Arab Emirates (UAE) Energy Minister Suhail Al-Mazrouei earlier told reporters that producers were capable of filling any market gap and that relaxing supply cuts was not “the right decision.”
Meanwhile, US President Donald Trump threatened Tehran on Sunday, tweeting that a conflict would be the “official end” of Iran, while Saudi Arabia said it was ready to respond with “all strength” and that it was up to Iran to avoid war.
The rhetoric follows last week’s attacks on Saudi oil assets and the firing of a rocket on Sunday into Baghdad’s heavily fortified “Green Zone” that exploded near the US embassy.
“Al-Falih and the UAE both put paid to suggestions of increasing production over the weekend and then President Trump essentially telling Iran to bring it on, was a perfect short-term storm for oil prices,” Greg McKenna, strategist at McKenna Macro, told Reuters by email.
OPEC, Russia and other non-member producers, an alliance known as OPEC+, agreed to reduce output by 1.2 million barrels per day (bpd) from Jan. 1 for six months to prevent inventories from increasing and weakening prices.
“This second half, our preference is to maintain production management to keep inventories on their way declining gradually, softly but certainly declining toward normal levels,” Al-Falih told a news conference after OPEC and other producers met.
Russian Energy Minister Alexander Novak earlier said an easing of cuts had been discussed and the supply situation would be clearer in a month, including from countries under sanctions.
Another bullish signal was a second week of declines in US drilling operations, with energy companies cutting oil rigs to the lowest since March 2018.
The rig count, an early indicator of future output, fell by 3 to 802, General Electric Co’s Baker Hughes energy services unit said on Friday.


Oman’s sultan says government will work to reduce debt

Updated 23 February 2020

Oman’s sultan says government will work to reduce debt

DUBAI: Oman's Sultan Haitham bin Tariq al-Said said on Sunday the government would work to reduce public debt and restructure public institutions and companies to bolster the economy.
Haitham, in his second public speech since assuming power in January, said the government would create a national framework to tackle unemployment while addressing strained public finances.
"We will direct our financial resources in the best way that will guarantee reducing debt and increasing revenues," he said in the televised speech.
"We will also direct all government departments to adopt efficient governance that leads to a balanced, diversified and sustainable economy."
Rated junk by all three major credit rating agencies, Oman's debt to GDP ratio spiked to nearly 60% last year from around 15% in 2015, and could reach 70% by 2022, according to S&P Global Ratings.
The small oil producing country has relied heavily on debt to offset a widening deficit caused by lower crude prices. Also, the late Sultan Qaboos, who ruled Oman for nearly 50 years, held back on austerity measures.
The country has delayed introducing a 5% value added tax from 2019 to 2021, and economic diversification has been slow, with oil and gas accounting for over 70% of government revenues.
Last week, rating agency Fitch said Oman was budgeting for a higher deficit of 8.7% for 2020 despite its expectation of further asset-sale proceeds and some spending cuts.
"We are willing to take the necessary measures to restructure the state's administrative system and its legislation," Haitham said in his first speech since the mourning period for Qaboos ended, without elaborating.
He said there would be a full review of government companies to improve their business performance and competence.
Oman observers have said that if Haitham moves to decentralise power it would signal willingness to improve decision making. Like Qaboos, he holds the positions of finance minister and central bank chairman as well as premier, defence and foreign minister.