The oil price collapsed on early Thursday The OPEC did not yet show a solid agreement in Vienna, at least not yet. After hours of meetings, OPEC canceled its press conference and waited for the arrival of the Russian delegation on Friday.
The oil price crisis reminds the group that the market is making a significant impact.
OPEC met on Thursday and Russia's oil minister Alexander Novak arrives on Friday, essentially telling Saudi Arabia what to do. The rest of OPEC, with the exception of the United Arab Emirates and Kuwait, are either unable or unwilling to go along with production cuts.
Saudi Arabia wants to significantly reduce oil production to balance the market, and it must account for the lion's share of cutting. Russia is much less concerned about a particular outcome and has shown only interest in a symbolic cut. This means that Moscow has an extremely high degree of leverage at the OPEC + event.
Early Thursday, Al-Falih set a confident tone in the face of uncertainty, suggesting that Saudi Arabia is not looking desperately for a deal that is likely to be a bit brave in an attempt to pressurize the rest of the group , "Unless everyone agrees to join and contribute right away, we'll wait until they are," he told reporters. Brent fell below $ 60 a barrel during midday trading.
President Trump offered his two cents on Wednesday before the meeting.
Hopefully, OPEC will not restrict oil flows as they are. The world does not want to see or need higher oil prices!
– Donald J. Trump (@realDonaldTrump) December 5, 2018
In reality, Saudi Arabia is pushing for a deal. After several hours of closed towers, the OPEC delegates appeared without offering too much detail. Nevertheless, there were rumors in Vienna (as usual) that the group will discontinue a production cut of around 1 million barrels per day (mb / d). But the lack of an announcement on Thursday has unsettled market participants. Related Topics: US oil majors break "The Contract Of The Century"
Nevertheless, there are not many possible outcomes. Most analysts seem to believe that the OPEC + meeting will end in a decline in production that is relatively narrow. According to S & P Global Platts, the group is considering options between 500,000 bpd and 1.5 mb / d.
Al-Falih also told reporters that a reduction of about 1 mb / d should be enough to make up for the market. Bloomberg said on Thursday that "there was consensus on this scale," including Russia's contribution. "We want to come up with something that will balance the market, but we do not want to shock the market," Falih told reporters in Vienna.
Oil traders have probably already baked at this level as the starting point, so if OPEC + sinks, it's likely that markets will probably not be overly impressed.
In fact, everything is considered a big disappointment. The markets are already pricing in at 1 mb / d and are hoping for more. "When ministers come together, there is a general belief that some sort of decline is agreed – somewhere between 1 and 1.5 million barrels a day," said Tamas Varga, oil analyst at PVM Brokerage, according to the Wall Street Journal. Related: Is this the most important factor for oil in 2019?
The sticking point seems to be how much Russia breaks. If, as Moscow prefers, Russia reduces by around 150,000 barrels per day, the total reduction is closer to 1 mb / d. If Russia reduces by 250,000 to 300,000 bpd according to Saudi Arabia, the total cut could increase to 1.3 mb / d according to Reuters. "The average will be between 1.0 and 1.3 million bpd. We just have to see how it is distributed, "said one OPEC delegate. Iran, Libya and Venezuela want exceptions to the cuts, and it is not clear if the group has resolved this disagreement.
The larger amount "would be enough to make up for the oil market next year – ie to avoid oversupply," the Commerzbank said on Thursday in a note. "In that case, Brent would go up a bit, but it would fall below $ 60 if production is reduced by a lesser amount."
Rystad Energy went further. "To bullishly surprise the market, we would have to announce cuts of nearly 2 million Bpd. If OPEC + announces a cut of 1.5 million barrels a day, we believe the market response will initially be neutral, but will gradually pave the way for a recovery in oil prices above the $ 70 Brent for 2019 " says Björnar Tonhaugen, head of oil market research at Rystad Energy, said in a statement. "[A] Anything less than 1 million bpd of 2019 from the 2019 offer would be interpreted negatively by the market."
By Nick Cunningham of Oilprice.com
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