After so much hype and expectation, it appears that the OPEC meeting in Vienna was anything but before it had just begun.
Russia and Saudi Arabia have agreed to extend OPEC + production by six to nine months. Production levels remain unchanged, but the timing can be extended through the first quarter of 2020. "We will support enlargement, both Russia and Saudi Arabia. As far as the length of the extension is concerned, we have not yet chosen whether it will be six or nine months. It will be nine months, "said Russian President Vladimir Putin on the sidelines of the G20 conference in Japan.
Saudi officials sounded a little safer. "I think most likely a nine-month extension," said Saudi oil minister Khalid al-Falih. But when asked if the oil market needed deeper cuts, al-Falih said no. "I don't think the market needs it," he said.
The nine-month extension of cuts makes sense because of the seasonally weak demand at the beginning of the year. In any case, the group will meet again in six months to reassess so the precise duration of the enlargement is almost irrelevant.
It leaves little drama to the meeting in Vienna. In fact, although OPEC was to work on consensus, al-Falih played the notion that all important decisions are taking place in Riyadh and Moscow. "The agreement confirms that the Saudi Arabian partnership paved the way for ensuring the interests of producers and consumers and the continued growth of the world economy," al-Falih tweeted. Related: These 1
It didn't go well with the rest of the group. "Who needs an OPEC meeting?" Said an annoyed OPEC delegate, according to Reuters.
Still, the rest of OPEC has no choice but to follow what the coalition's two most powerful producers decide. Most OPEC members produce as much as possible or suffer from outbreaks. Few people have the ability to voluntarily keep the supply of the market in any meaningful way. Regardless, they all seem to have higher oil prices.
The only potential play in Vienna would be if Iran opposed the process if it were only to protest against the brutal sanction regime from Washington and what Tehran sees as Saudi involvement. Iran fought over the planning of the meeting, perhaps as a way of demonstrating its relevance. But scattering the OPEC + agreement would not serve its interests. On Monday, Iran's oil minister Bijan Zanganeh told reporters he was on board. "I have no problem with a production bracket … It will be an easy meeting as my attitude is very clear," Zanganeh told reporters in Vienna.
However, he was annoyed that Putin seemed to be announcing the outcome of the meeting before it happened. "The important thing for me is that OPEC remains OPEC. It has lost its authority and it is on the brink of collapse," Zanganeh said. "Iran will not leave OPEC, but I think OPEC will die with these processes."
The important thing about the oil market's perspective is that the cuts are widening. But that does not mean that OPEC + has completed its task. While the agreement could be extended for nine months, the OPEC + fight is a long term one.
"Being between a stone and a hard place" has been the description of OPEC's situation at the head of today's meeting on July 1) and loses market share to flourish US shale oil production on the one hand while faced with weakening on the other hand, says Bjarne Schieldrop, chief consultant analyst at SEB in a statement. Related: Libya conflict has only given a very dangerous trip
OPEC's market share will fall below 30 percent of global global supply for the first time since 1991, according to Bloomberg News. As other non-OPEC supplies (virtually American slate) continue to grow, OPEC is trapped in an eternal society to stop production to prevent a price breakdown. At present, the cuts production seems to be in the interest of members, due to fiscal pressure. But it is unclear how the cartel ever leaves the agreement as there are increasing non-OPEC supply and softening needs. "For Saudi Arabia, oil policy is now 100% revenue," says Amrita Sen, chief analyst at consultant Energy Aspects Ltd., according to Bloomberg. "But if inventories do not fall and prices do not rise, the policy is not sustainable."
U.S. Slate production growth could also decline, which would make OPEC + jobs a little easier. "US crude production is likely to be 0.4m bl / day higher at year-end, but on average only 0.2m bl / day higher in H2 2019 than in June," says Bjarne Schieldrop. "So, OPEC + will probably have to produce more in H2 2019 than they did in H1 2019 to meet seasonally higher demand, unless the global economy is totally in conflict."
In addition, demand tends to increase on a seasonal basis in the second half of the year. The global economy seems to be slowing down, and demand has been weak, but the expected seasonal acquisition may offset some of that softness. "Thus, if Russia, Saudi Arabia and other key OPEC members keep production at the levels they produced in the first half of 2019, they will ensure that the global oil market is not flowing over," Schieldrop said.
By Nick Cunningham from Oilprice .com
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