TORONTO: An informal Opec meeting has now been scheduled in Algiers late September, to discuss the alarming market scenario. Is Opec endeavouring to ‘talk the price up?’
The debate is on.
Crude prices touched four-month low last week. Efforts seem now on, to try and coalesce a joint Opec response to the prices going below $40 mark. The scenario prompted a flurry of energy diplomacy.
Venezuelan President Nicolas Maduro spoke to King Salman about ways to boost crude prices. As per wire reports, President Maduro said Opec should try to return oil prices to the $70 per barrel level. Maduro also spoke to the heads of state of other major producers – Russia, Iran and Qatar. Consequent to all this, Opec agreed to an informal meeting in Algiers, late September, giving rise to speculation that an output freeze agreement could be on cards. Markets took the cue and strengthened.
Saudi Oil minister Khalid Al-Falih’s remarks on Thursday also helped. “If there is a need to take any action to help the market rebalance, then we would, of course in cooperation with Opec and major non-Opec exporters,” Falih said.
But skeptics are all around. Not many are hopeful.
On a close look, the Saudi position too is no different from past. Al-Falih underlined it, once again, that Riyadh would be ready to undertake all that is required, but indeed in “cooperation with Opec and major non-Opec exporters.”
This is no different from Doha in June. In Doha too, Saudi Arabia was ready to work out an agreement, provided Iran and all others, contribute to an output freeze regimen. And when Iran refused, the initiative skittled.
Hence Iranian cooperation would be necessary this time too for the Opec to reach a conclusion. Yet the timing of the comment was interesting. It definitely helped the market sentiments.
Actions in the meantime, continue to be distinctly bearish.
Opec crude output went up in July by 46,000 barrels a day from June to 33.11 million barrels a day, on higher output from member countries.
Saudi Arabia boosted oil output to a record 10.67 million barrels a day in July, according to Opec data published Wednesday. This was 30,100 barrels a day higher from a year earlier.
Iranian output too has risen to 3.85 million barrels a day – the highest since 2008.
In order to increase sales, Kuwait on Wednesday also cut its pricing to Asia, widening the discount to the regional benchmark to $2.65 a barrel for September from $1.70 a barrel in August.
Iraq too is ramping up output, undertaking aggressive development of its oil fields in collaboration with BP, Shell, and Lukoil. This could lead the Iraqi output to rise by up by 350,000 bpd next year, analysts say.
Signals from other parts of the globe too continue to be bearish. In a third consecutive weekly build up, U.S. crude inventories rose 1.1 million barrels in the week ending August 5.
The U.S. crude inventory build-up overshadowed the drop in U.S. gasoline stocks by 2.8 million barrels last week in the second-biggest weekly draw for the fuel since mid-April. However, it must be noted that the dip in gasoline inventory came while the peak summer driving season was on and the U.S. East Coast refinery runs were hitting 2011 lows.
In the meantime, the global crude demand growth is beginning to stutter. Chinese demand is already showing a swift drop-off over the last three-quarters. In its monthly Oil Market Report, the IEA projected the global oil demand growth slowing down from 1.4 million bpd in 2016 to 1.2 million bpd in 2017. A “dimmer macroeconomic outlook” has apparently forced the IEA to revise its demand growth outlook down from its previous forecast last month.
Many pundits thus continue to be skeptic about a rebound in the market. Even the Opec doesn’t seem very hopeful. “Lower-than-predicted demand, high refined product stocks during the peak summer driving season and rising crude supply… have all significantly exerted pressure over the month,” Opec felt.
“In terms of the group agreeing on a deal that would make a real change to supply, we shouldn’t expect anything,” Olivier Jakob of Petromatrix was quoted as saying. “Everyone is more or less producing at capacity.”
With fundamentals continuing to be weak, not much hope could be pinned on the Opec informal meeting chatter.
