‘One of the strangest OPEC meetings I can remember’: Crane

From the The New York Times

VIENNA — Saudi Arabia is poised to advocate that OPEC cut oil production by about a million barrels a day — roughly 1 percent of the global oil supply — as the group begins discussions on Thursday on ways to keep supply and demand in balance.

Khalid al-Falih, the Saudi energy minister, said Thursday morning that “all options” are on the table but that a reduction of one million barrels was “adequate” to balance the markets. He added that he had heard a range of numbers discussed, from 500,000 to 1.5 million barrels a day.

Mr. Falih, whose country represents 12 percent of global oil output, said that he had met with the American special envoy Brian Hook on Wednesday. He noted that Mr. Hook had “refrained” from asking the Saudis not to cut production, but quickly added, “I don’t need permission to cut.”

The two men discussed several issues, including Washington’s plans to carry out sanctions on Iran.

With OPEC expected to meet through the afternoon, oil prices dropped sharply Thursday morning. Brent crude, the international benchmark, dropped about 3 percent to $59.72 a barrel, and WTI was down a 3.2 percent to $51.26 a barrel.

“Markets are greedy,” said Roger Diwan, a vice president for oil market strategy at the research firm IHS Markit. “They want certainty that you have a large enough cut to change the direction of prices. They haven’t heard that yet.”

OPEC has been whipsawed by competing pressures lately. On one hand, the world is widely viewed as having an oil glut substantial enough to justify a cut in production. Such a move would prop up prices, which have tumbled since reaching about $76 a barrel for West Texas intermediate crude, the American benchmark, in early October.

On the other hand, President Trump is pressing OPEC, and Saudi Arabia in particular, to maintain production levels to keep prices low for American consumers. Mr. Trump turned to Twitter on Wednesday to show that he was paying attention to the talks.

“Hopefully OPEC will be keeping oil flows as is” he wrote in one post. “The World does not want to see, or need, higher oil prices!”

Mr. Trump’s attempts to intervene in OPEC deliberations create a quandary for the Saudis, whose role in setting production levels and influencing the markets makes them key decision makers at OPEC.

“The Saudis have many constituencies to please, some of them contradictory,” Mr. Diwan said. “The tweeting takes away their ability communicate effectively.”

In normal times, analysts said, there would be little hesitation to cut supplies. But these are not normal times.

“This is one of the strangest OPEC meetings I can remember,” Jim Krane, an energy fellow at the Baker Institute at Rice University said on Wednesday. “Balancing the oil market is taking a back seat to political intrigues involving Saudi Arabia and Donald Trump.”

“It’s like there’s a Trump-caricature Thanksgiving parade balloon hanging outside OPEC headquarters,” he added.

Tensions are also emerging within OPEC. Qatar, which has long been part of a bloc of Gulf Arab states supporting the Saudis, said on Monday that it would leave the oil cartel next year to focus on developing natural gas. It hinted that the decision was motivated partly by frustration over the Saudis dominance of oil policy.

Iran, Saudi Arabia’s longstanding rival in OPEC, is a complicating factor. The Iranians reacted angrily to news reports of Mr. Hook’s presence in Vienna. The diplomat has been traveling the world to build support for America’s latest sanctions against Iran.

From Oil & Gas 360®

In his remarks at the OPEC conference Thursday morning, UAE Minister of Energy and Industry, and President of the OPEC Conference Suhail Mohamed Al Mazrouei, set the tone for an agreement on continued production cuts, describing 2018 as “a positive year.”

“We have witnessed positive progress on removing the inventory overhang, the market has seen further rebalancing and there has been excellent collaboration between OPEC and non-OPEC participants in the ‘Declaration of Cooperation’.”

Al Mazrouei lauded OPEC and non-OPEC producers for their “continuous efforts over the past two years to pursue a balanced, stable and sustainable global oil market. This serves the interests of consumers, producers, the industry and the global economy at large.

Work not done

“However, I think we can all recognize that our work is not done.”

Al Mazrouei pointed out challenges in 2019 including a consensus that prospects point to” higher supply growth than expected global requirements and there are signs of a potential slowdown in demand.”

“Today, it is vital that we thoroughly examine the potential gap between supply and demand in 2019, and how this might impact inventory levels and the extremely ‘hard won’ market balance we have achieved over the past two years.

Al Mazrouei said the group needs to maintain the balanced market that was achieved in 2018 while allowing the industry “to make the necessary investments to continue to meet expected future oil demand. This will require us to change the strategy we took in June 2018.

“Thus, it is essential that we look to move ahead with a more permanent relationship with our non-OPEC producers, in order to continuously adapt to ongoing market dynamics, and to help meet the challenges, as well as opportunities, that we will face in the months and years ahead.

“I look forward to your support in delivering the right decisions during our meeting today and your backing for a positive resolution with our non-OPEC friends on Friday,” he said.

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