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Energy market nervously gazes at OPEC meeting

29 November 2016 [15:15] - TODAY.AZ

By Azernews


By Gulgiz Muradova

Oil prices swung between gains and losses during the past two months as investors digested whether OPEC will be able to hammer out a meaningful output cut at the upcoming Vienna meeting aimed at reining in a global supply overhang and propping up prices.

Brent crude futures LCOc1 were trading at $47.80 per barrel at 0546 GMT, down 44 cents, or 0.9 percent on November 29, from their last close. U.S. West Texas Intermediate crude futures CLc1 were down 42 cents, or 0.9 percent, at $46.66 a barrel, Reuters reported.

OPEC, the cartel of 14 oil producing countries, will meet officially in Vienna on November 30 to consider previously planned output cut in an effort to curb glut that has dogged markets and more than halved prices since mid 2014.

The intense negotiations would be needed to cement a preliminary September deal reached in Algiers.  Then, the cartel agreed the outline of its first production curbs since the global financial crisis in 2008. Since then, the group has spent two months trying to agree how to share the cuts. Although recent statements from the OPEC and non-OPEC countries suggest that there is a broad agreement on the rationale for a cut, quota negotiations are very stressful.

If OPEC agreed a production cut to 32.5 million barrels per day (bpd), down from 33.82 million bpd in October, crude prices would likely rise to the low $50s per barrel, Goldman told Reuters.

"If no deal is reached, our expectation of rising (crude) inventories through 1H2017 would warrant prices averaging $45 per barrel through next summer," the bank said.

The November 30 meeting will be the most important cartel meeting in over than 40 years, believes Spencer Welch, the director of Downstream Consulting at IHS Markit.

Welch noted that, a deal will be extremely challenging to deliver, given the political differences between members, particularly Saudi Arabia and Iran, and several OPEC nations actively trying to increase production – Iran, Iraq, Nigeria and Libya. However, the expert believes that OPEC will reach some deal this week.

OPEC officials were scheduled to meet with non-members including Russia on November 28 before a ministerial meeting in Vienna. However, Saudi Arabia pulled out of planned talks with non-OPEC nations including Russia as disagreements about how to share the burden of supply cuts stood in the way of a deal.

Saudi Arabian Energy Minister Khalid al-Falih said on October 27 that the oil market would balance itself in 2017 even if producers did not intervene, and that keeping output at current levels could therefore be justified.

Instead, the group called another internal meeting to try to resolve its own differences, particularly the question of whether Iran and Iraq are willing to cut production.

Arthur Berman, an independent U.S. geological consultant is sure there are still chances for the OPEC agreement on oil production cut, but its impact on oil prices will depend on the volume of cut.

“I think that OPEC will reach some kind of agreement this week. There is considerable economic pressure on Saudi Arabia for higher margins to meet its fiscal budget requirements,” Berman told Trend by email.

Berman noted that in the past, Iran has been an obstacle to the OPEC agreement, but realistically, it cannot increase its production much more than it already has, without considerable investment in infrastructure and new drilling.

As for Iraq, it critically needs prices at or higher than current levels to maintain their fight against ISIS and to satisfy their budget needs, said Berman, stressing the importance of Russia’s joining any agreement on oil production.

Without the deal, the International Energy Agency predicted that 2017 will be the fourth consecutive year in which supply runs ahead of demand, potentially causing lower prices.

The November forecast of OPEC shows that the world oil demand in 2016 will reach 94.4 million barrels per day. The world oil production in October, according to OPEC data, was 96.32 million barrels per day. Some 35 percent of the world liquids production comes from OPEC countries.

So, if the OPEC cut approaches 1 million bpd, prices will stay higher longer but if the cut is only a few hundred thousand barrels per day, higher prices will be less durable.

URL: http://www.today.az/news/business/156433.html

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