Oil majors to discuss fresh cuts
The world's top oil producers, meeting on Thursday in Abu Dhabi, face a dilemma as they ponder whether deeper production cuts are needed to prop up crude prices pummelled by the escalating US-China trade war and a consequent uncertain global outlook.
The predicament confronting Opec and key non-Opec members is that while further cuts could help boost prices, the move risks more losses of market share. Already, Opec's global crude market share had fallen from a peak of 35 per cent in 2012 to 30 per cent as of July 2019.
Re-affirming the UAE's continued commitment to achieve global oil market balance and stability, Suhail bin Mohammed Faraj Faris Al Mazrouei, UAE Minister of Energy and Industry, warned that additional output cuts may not be the best way to boost flagging prices.
Speaking to reporters on Sunday ahead of a four-day World Energy Congress starting in Abu Dhabi, where a key meeting of oil ministers will also be held on Thursday, Al Mazrouei said production cuts are "not a decision that we take easily."
However, the minister added: "Anything that the group sees that will balance the market, we are committed to discuss it and hopefully go and do whatever necessary. But I wouldn't suggest to jump to cuts every time that we have an issue on trade tensions."
Analysts say the Opec+ group's obvious move is to deepen the reductions, but while that could help prices, it also risks further losses of market share.
"Opec has traditionally resorted to production cuts in order to shore up the prices," said M. R. Raghu, head of research at Kuwait Financial Centre. The primary factor dragging down oil prices was poor demand due to trade tensions between the US and China.
"Without a favourable resolution to the dispute, Opec's production cuts will not result in a sizeable uptick of oil prices," he said.
The 24-nation Opec+ group, dominated by Saudi Arabia and Russia, agreed to reduce output in December 2018 as a faltering global economy and a boom in US shale oil threatened to create a global glut in supply.
"If trade tensions escalate further, oil demand growth may soften even more, requiring much lower prices," said Giovanni Staunovo, analyst at UBS.
Rapidan Energy Group said the alliance might need to cut output by an additional one million bpd to stabilise the market. But the problem will be deciding which member countries will shoulder the burden of any new cuts.
Analysts said while previous supply cuts have mostly succeeded in bolstering prices, this time, the market has continued to slide. This is even after Opec+ agreed in June to extend by nine months an earlier deal slashing output by 1.2 million barrels per day amid a flare-up in trade tensions between world's two economic powers, kindling fears of a recession that would undermine demand for oil.
"What is happening to oil prices is outside the control of Opec and certainly stronger than its capability," Fadhl Al Bouenain, a Saudi economist, was quoted as saying.
"Accordingly, I think Opec+ will not resort to new production cuts because that would further blunt the group's already shrunken market share," he said.
Bouenain noted that Riyadh is likely to resist taking on further cuts, given the impact on the kingdom's revenues.
On Sunday, Iraq's oil minister Thamer Ghadhban said it would reduce oil production from October. "We are committed to the agreement to reduce production," he said.
European benchmark Brent was selling at $61.54 per barrel Friday, in contrast with more than $75 this time last year but up from around $50 at the end of December 2018.
Standard Chartered said in recent a commentary said oil policy options for key producers are limited, for the moment.
No decisions will be taken at Thursday's meeting, but it should produce recommendations ahead of an Opec+ summit in Vienna in December.
Makers of parts, some of which already being sold abroad, 'can beat... READ MORE
Businesses, individuals relying more on its wide reach and is... READ MORE
Partnership poised to address shortage in the number of quaternary... READ MORE
Saudi Arabia has an opportunity to drive technology-led productivity... READ MORE
Little Aquib managed to pull off the full fast with immense grace... READ MORE
Foreign Minister says meeting with his Indian counterpart is not... READ MORE
Over 41.7 million tests have been conducted across the country to... READ MORE
Two doctors in Gujarat get back to work after performing their... READ MORE