OPEC has few escape routes from another bear market in oil - Report
Bloomberg reported that oil’s back in a bear market and investors remain unmoved by last month’s agreement to prolong supply cuts, leaving Opec and its allies with few remaining tools to boost prices. As Saudi Arabia, Russia and their allies reduce output, supply that’s beyond their control keeps rising. Libya and Nigeria - Opec members exempt from the curbs - and US shale producers are resurgent, undermining efforts to tame a global glut. Prices are back below where they were when the Organization of Petroleum Exporting Countries first struck its historic deal last year.
Cutting even deeper - an idea rejected just a month ago - still looks unlikely. For now at least, the Saudi pledge to do “ whatever it takes” to stabilize prices looks like not much at all.
Further curbs could be necessary, but reaching a consensus will be difficult, Iran’s Oil Minister Bijan Namdar Zanganeh said Wednesday on state radio. A committee meeting in Vienna this week gave only cursory attention to the possibility of deepening the existing cuts, according to delegates familiar with the matter, focusing instead on the problem of rising output in Libya and Nigeria. Russia has indicated on several occasions that it’s opposed to any additional reductions, said one delegate.
Mr Hasan Qabazard, the former head of research at the group, said that “Deepening the cuts is one good option” for OPEC’s immediate difficulties, but would create longer-term problems. “This will come at the expense of OPEC’s market share. Do they want to lose share? I don’t think so, because many countries have invested in raising capacity recently."
Losing Markets
Nations that have made the production cuts already appear to be ceding ground as rival supplies grow.
According to data from the Energy Information Administration, in the US, crude production moves inexorably higher as shale producers, made leaner by the downturn, find they can pump oil profitably at lower prices. Output rose last week to 9.35 million barrels a day, the highest level since August 2015. The pace of U.S. output gains has been more than Opec bargained for, said Iran’s Zanganeh.
The internal strife that earned two of OPEC’s African members an exemption from any cuts has eased. Libya is now pumping about 900,000 barrels a day, the most in four years, an official at the National Oil Corp. said earlier this week. In Nigeria, a major export terminal restarted after a 15-month halt caused by sabotage and will ship about 250,000 barrels a day this month.
Mr David Fyfe, global head of research at oil trading house Gunvor Group Ltd. in Geneva, said that “OPEC will need to offset whatever incremental supply the market gets from Libya and Nigeria."
The agency said that next year, new oil supplies from Opec rivals, chiefly the US, will be more than enough to meet demand growth, the International Energy Agency said last week. As a result, demand for the group’s crude will be about 200,000 barrels a day lower than this year.
Hard Bargain
If producers chose to overlook these downsides and pursue deeper cuts, or the inclusion of Libya and Nigeria, it might not be easy. It took Opec and its allies almost a year to fashion last year’s agreement, with failed talks in Doha in April, a hard fought compromise in Algiers in September, and months of shuttle diplomacy before sealing the deal in November.
Source : Bloomberg