Oil skirts $50 barrier as majors soften cuts

Oil skirts $50 barrier as majors soften cuts
A likely rebound in oil demand next year has added to industry optimism, but analysts warn there are ‘further challenges to OPEC+ harmony’ in the months ahead. (Shuutterstock)
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Updated 05 December 2020

Oil skirts $50 barrier as majors soften cuts

Oil skirts $50 barrier as majors soften cuts
  • Bullish global outlook prompts OPEC+ compromise deal to avoid price war

LONDON: Brent crude oil futures neared $50 on Friday after producers reached a compromise deal to nudge output from next month.

The Organization of the Petroleum Exporting Countries (OPEC) and their allies, known collectively as OPEC+ on Thursday agreed to soften output cuts from January by 500,000 barrels per day to be followed by further increases that have not yet been agreed each month.
It means that OPEC+ has committed to cut production by about 7.2 million barrels per day (bpd) from January compared with the existing cuts of 7.7 million bpd. The agreed reduction represents about 7 percent of global oil demand.
“This week’s compromise reflects a determination to avoid a repeat of the price war in March and April this year,” said Wood Mackenzie Vice President Ann-Louise Hittle.
The consultancy expects Brent to average at least $45 next month as a result of the agreement.

FASTFACT

OPEC+ has committed to cut production by about 7.2 million barrels per day (bpd) from January.

The oil price also received a lift from increased support for a $908 billion coronavirus stimulus package in the US congress and building optimism around the rollout of new vaccines that are expected to provide a boost for global air travel and with it demand for aviation fuel.
“Oil demand is likely to rebound strongly in 2021 along with the roll-out of vaccines. There are good reasons to be bullish for oil,” SEB analyst Bjarne Schieldrop said.
While the compromise deal has helped to support the oil price, analysts expect further tests for OPEC+ harmony in the months ahead.
“Now it faces the tricky task of reconsidering production at meetings each month during Q1 2021 and avoiding similar disagreements over compliance and production,” said WoodMac’s Hittle.
Brent was up more than 1 percent at $49.23 a barrel in late afternoon trade in London. Meanwhile, West Texas Intermediate was up by a similar measure at $44.08.


France wants end to US-Europe trade spat

France wants end to US-Europe trade spat
Updated 17 January 2021

France wants end to US-Europe trade spat

France wants end to US-Europe trade spat
  • All eyes on President-elect Biden to resolve disputes between partners

PARIS: The EU and the incoming administration of US President-elect Joe Biden should suspend a trade dispute to give themselves time to find common ground, France’s foreign minister said in remarks published on Sunday.

“The issue that’s poisoning everyone is that of the price escalation and taxes on steel, digital technology and Airbus,” Jean-Yves Le Drian told Le Journal du Dimanche in an interview.

He said he hoped the sides could find a way to settle the dispute. “It may take time, but in the meantime, we can always order a moratorium,” he added.

At the end of December the US moved to boost tariffs on French and German aircraft parts in the Boeing-Airbus subsidy dispute, but the bloc decided to hold off on retaliation for now.

The EU is planning to present a World Trade Organization (WTO) reform proposal in February and is willing to consider reforms to restrain the judicial authority of the WTO’s dispute-settlement body.

The US has for years complained that the WTO Appellate Body makes unjustified new trade rules in its decisions and has blocked the appointment of new judges to stop this, rendering the body inoperable.

The Trump administration, which leaves office on Wednesday, had threatened to impose tariffs on French cosmetics, handbags and other goods in retaliation for France’s digital services tax, which it said discriminated against US tech firms.

Overturning decades of free trade consensus was a central part of Trump’s “America First” agenda. In 2018, declaring that “trade wars are good, and easy to win,” he shocked allies by imposing tariffs on imported steel and aluminum from most of the world.

While Trump later dropped tariffs against Australia, Japan, Brazil and South Korea in return for concessions, he kept them in place against more than $7 billion worth of EU metal. The bloc retaliated with tariffs on more than $3 billion worth of US goods, from orange juice and blue jeans to Harley Davidson bikes, and took its case to the WTO.

While Biden promises to be more predictable than Trump, he is not expected to lift the steel tariffs immediately. Even if he wants to, he could run into reluctance from producers in “rust belt” states such as Michigan and Pennsylvania that secured his election win.

Hosuk Lee-Makiyama, director of trade think tank ECIPE, said the US was unlikely to award Europe a “free pass,” noting that countries that had offered concessions to have their tariffs lifted could complain if Europe won better treatment.

Resolving future trade disputes could become easier, if Biden reverses Trump policy that paralyzed the WTO by blocking the appointment of judges to its appellate body.