WEEKLY ENERGY RECAP: Keeping things in balance

WEEKLY ENERGY RECAP: Keeping things in balance
Brent crude rose above $64 per barrel after OPEC+ producers unanimously agreed to deepen output cuts by 503,000 barrels per day. (AFP/File)
Updated 08 December 2019

WEEKLY ENERGY RECAP: Keeping things in balance

WEEKLY ENERGY RECAP: Keeping things in balance
  • The over-compliance will result in cuts of 1.7 million bpd

Brent crude rose above $64 per barrel after OPEC+ producers unanimously agreed to deepen output cuts by 503,000 barrels per day (bpd) to a total 1.7 million bpd till the end of the first quarter of 2020.

The breakdown is that OPEC producers are due to cut 372,000 bpd and non-OPEC producers to cut 131,000 bpd.

Current market dynamics led to this decision as oil price-positive news outweighed more bearish developments in the US-China trade narrative that has weighed on oil prices throughout the year, with US crude exports rising to a record 3.4 million bpd in October versus 3.1 million bpd in September.

OPEC November crude oil output levels at 29.8 million bpd show that producers were already overcomplying with its current 1.2 million bpd output cuts deal by around 400,000 bpd. 

The over-compliance will result in cuts of 1.7 million bpd, especially when Saudi Arabia continues to voluntarily cut more than its share.

This makes the agreed 1.7 million bpd output cuts pragmatic since it won’t taken any barrels out of the market.

It isn’t a matter of OPEC making room in the market for other additional supplies from non-OPEC sources, as OPEC barrels can’t be easily replaced.

Instead, this is about avoiding any oversupply that might damage the global supply-demand balance.

Saudi energy minister Prince Abdulaziz bin Salman has effectively kept his promise and managed to smoothly forge a consensus among OPEC and non-OPEC producers.

He has also successfully managed the 24-country coalition of OPEC+ including Russia in reaching an agreement.

Despite suggestions otherwise in recent coverage of the Vienna meeting, the deeper cuts announced on Friday have nothing to do with the Aramco IPO. Let’s remember this meeting was scheduled six months ago and the IPO has been in the works for much longer.

The Aramco share sale did not target a specific oil price. If that was a motivating factor it could easily have chosen another time.


IMF chief sees ‘high degree of uncertainty’ in global outlook

IMF chief sees ‘high degree of uncertainty’ in global outlook
Updated 22 min 22 sec ago

IMF chief sees ‘high degree of uncertainty’ in global outlook

IMF chief sees ‘high degree of uncertainty’ in global outlook
  • IMF had rapidly increased concessional financing to emerging market and developing economies
WASHINGTON: The head of the International Monetary Fund on Monday said the global lender needed more resources to help heavily indebted countries, citing a highly uncertain global economic outlook and a growing divergence between rich and poor countries.
IMF Managing Director Kristalina Georgieva, who has long advocated a new allocation of the IMF’s own currency, Special Drawing Rights (SDRs), said doing so now would give more funds to use address both the health and economic crisis, and accelerate moves to a digital and green economy.
Under outgoing President Donald Trump, the United States, the IMF’s largest shareholder, has blocked such a new SDR allocation, a move akin to a central bank printing money, since it would provide more resources to richer countries since the allocation would be proportionate to their shareholding.
Swedish Finance Minister Magdalena Andersson, the new chair of the IMF’s steering committee speaking at an online news conference with Georgieva, said it was clear the need for liquidity remained great, and she would consult with member countries on options for expanding liquidity.
Andersson, the first European to head the International Monetary and Financial Committee in more than 12 years and the first women, started her three-year term in the role on Monday.
Georgieva said the IMF had rapidly increased concessional financing to emerging market and developing economies, including through donations by member countries of some $20 billion in existing SDRs. That would continue to play an important role, but further steps were needed, she said.
“It will continue to be so important, even more important, for us to be able to expand our capacity to support countries that have fallen behind,” Georgieva said.
She said a new SDR allocation had never been taken off the table by IMF members, she said, adding that some members continued to discuss it as a possible move. A possible sale of gold from the IMF’s reserves would have “some opportunity costs” for the IMF, but would be up to members, she said.
She said she expected the Group of 20 major economies to extend the current moratorium in official debt service payments by the poorest countries, now slated to end in June, but much would depend on the pace of vaccinations in coming months.