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OPEC may have less influence on oil prices than G-20, but there is a big game card



Secretary General of OPEC, Mohammed Barkindo (R), Russia Energy Minister Alexander Novak (L), Saudi Arabia Minister for Energy, Industry and Minerals, Khalid Al-Falih (C) holds a joint press conference during the 173rd Ordinary Meeting of the Organization for Oil Exporting Countries (OPEC) in Vienna, Austria on November 30, 2017.

Omar Marques | Anadolu Agency | Getty Images

OPEC Ministers meet Monday, but at the weekend's G20 summit, it could have much more influence on oil prices, depending on whether the outcome is good or bad for the global economy ̵

1; and therefore the demand for oil.

The world markets are focused on Saturday's meeting between President Donald Trump and China's President Xi Jinping to see if the two will agree on some kind of trade truce and continue negotiations against a broader agreement. In the oil market, trade wars have levied a demand on key markets such as Europe and Asia, and the dynamics have contributed to keeping prices down, although the tensions between the US and Iran are flaring up.

"The meeting that really counts is the meeting of the G-20," says Daniel Yergin, Vice-President of IHS Markit. "The question is why demand growth is weaker this year than in previous years … we show that demand this year is growing by 1.1 million tonnes a day. We see US growth by 1.5 million barrels a day. "

OPEC brings together a space of personalities and interests, and the oil market proves the dynamics of Russia-OPEC relations, especially Saudi Arabia, and the strained relations between Iran and other OPEC members. Iran suffers from US sanctions and has threatened to start enriching uranium at a higher level, which could damage its deal with countries that remain in the nuclear agreement that the US lost last year.

Iran has also been blamed for attacking Saudi oil assets, including two oil tankers. Last week, President Donald Trump interrupted what might have been a retaliatory attack on Iran to shoot down an American drone.

"I don't think you want to intervene between the Saudi and Iranian oil ministers' dueling. I'm sure the hostility is tangible," said John Kilduff from Again Capital.

OPEC-Russia production agreement continued

OPEC, Russia and other producers are generally expected to continue with an agreement of 1.2 million. Barrel a day production cut, which was originally agreed for last year. OPEC holds its market surveillance and ministerial meetings on Monday, and then "OPEC +", which includes Russia and other manufacturers, is convened on Tuesday.

"In the broader context of what can make oil flow, I think OPEC is pretty pro forma. We think they will roll over this deal," said Helima Croft, global commodity strategy director at RBC. "There are war drums that strike in the background and there is no offensive for this."

Analysts largely expect oil to trade above current levels for this year's balance, and Brent prices are expected to be over $ 70 a barrel and WTI closer to $ 65. that helps drive prices higher along with the decline in commodities from Iran and other manufacturers. Another factor hanging on the market is the possibility of several events in the Gulf region, as recent attacks on oil tankers and other assets that the United States claims Iran.

"At this point, I think oil traders have got their heads around a trade war so they don't understand what the degree of risk entails in escalation in the region," Croft said.

Russian-Saudis Bromance "

Although the oil industry is leading to Vienna for the two-day OPEC collection, Russian President Vladimir Putin is expected to meet with Saudi Arabia, Crown Prince Mohammed bin Salman or MBS on the side of G-20 held in Osaka Friday and Saturday

Saudi Energy Minister Khalid Al-Falih is also expected to meet his counterpart Russian energy minister Alexander Novak, who said on Thursday that he believes an agreement will be reached about their production agreement in Vienna.

"This is where we get an early reading of whether the" plus "part of the equation remains in the equation," says Jan Stuart, global energy economist with Cornerstone Macro. "I think that's a big thing, so the G-20 is important. "

Stuart said OPEC and Russia were expected to move towards a more formal relationship, but so far it hasn't happened.

" OPEC seems to be a little part of this nourishing relationship in Saudi Russia. I still think things had hit a point where it becomes important for the sovereigns to confirm what it's all about and I think that's what the G20 is all about, "said Stuart.

Citigroup's Edward Morse said Russia may have expected more from the relationship now. "So far, the Russians have been frustrated by the lack of progress in commercial relations between the two countries," said Morse, Worldwide Commodity Research Commander, saying projects as a military defense system pursued by the United States. and a commercial LNG deal has not come to work.

The increase in US production and market share could become a thin problem for Russia and OPEC as they empty production. "What happens to demand is really thoughts in Russia and Saudi Arabia. And the Russians, for their part, are worried about creating more room for the continued growth of US oil market share, "Yergin said.

The United States has spread both Saudi Arabia and Russia to become the world's largest oil producer in a relatively short time As the US oil industry improved in oil shale extraction and in horizontal drilling.

Analysts expect Russia and OPEC to continue their relationship for now. "We expect Russia to continue to work with OPEC in the same way. [Russian] Consistency was initially weak, "says Amarpreet Singh, energy consumer Barclays.

He said that Russia has become more compatible with the baseline reduction simply because it continues to have problems with the Druzhba pipeline, which turned out to export contaminated oil in April from Urals to Eastern Europe

Morse said Russia's exports could even be more limited due to problems at a port facility in the Black Sea, which is expected to be closed until next month after contaminated raw material was also found there.

Kilduff said the relationship between the two producers is strained, partly because Russia's oil companies are not interested in staying in an agreement that reduces production.

"They have no desire to lose even more market share. Increasingly, barrels of US crude oil appear in Asia, which is Russia's backyard, "said Kilduff. a geopolitical link to it and it has an investment context for it. I think Saudis hopes the Russians can have some influence on Tehran, "Yergin said.

What about Iran?

When OPEC meets next week, the Iranian problem will not be avoided either. more recently, by denying exceptions to some Iranian customers, and now some analysts say Iran's exports could be well below 500,000 barrels a day, down from more than 2 million barrels a day.

"The only thing we do not know , is what Iran would say … I think it's a wild card. I think if Iran says they will not go together and there is some precedence over this, the others will say we continue anyway, "Morse said.

Iraq has already proposed OPEC to deepen production cuts.

"I think they will say their piece, but I don't think it will affect the decision on the transfer," Croft said.

The loss of Iranian oil has been a factor in the oil market. "That is certainly a factor in oil price if you take a million barrels out of the market and a million plus from OPEC +, "he said. Morse said he expects Brent to move up to the mid-70s for the rest of the year.

Oil prices have risen in June after a steep glide from late April to May, when US-China trade negotiations spread, with Brent crude, the international benchmark, being around 6% for the month, and Brent futures traded about $ 65.70 Thursday West Texas Intermediate f utures were more than 11% a month and traded just under $ 60 a month. Barrel Thursday.

Analysts say the G-20 could be a positive turn to the oil market if Xi and Trump can make a public statement stating that there is a trade in arms trade and no more tariffs will be introduced while there negotiate a major deal. It is the great expectation of economists and strategists following the negotiations, but news reports on Thursday indicate that Xi has a list of conditions that can be difficult to agree on, including the US banning Huawei and lifting all tariffs.

"We have maintained this view that oil prices are currently below fair value as suggested by the supply requirements. The market went overboard as to how weak demand was perceived as", Singh said. "Nothing has really changed the supply side." He expects Brent to average around $ 73/74 for this year's balance sheet.

When Iran's oil came out of the market, US producers are continuing to increase production, and the US is now producing approx. 12.3 million barrels a day and recently exporting approx. 3.5 million of these barrels.


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