Opec talks about an output-capping deal will commence in Istanbul this week, and have already helped to propel oil prices to a four-month high.
Since agreeing in Algiers at the end of last month to a possible deal which aims to cap group production at 32.5 million to 33 million barrels per day (bpd) – potentially cutting more than 700,000 bpd from this year's peak output – oil prices have risen by 14 per cent. They are almost double their lowest level this year in January, with benchmark North Sea Brent futures ending last week at about US$52 per barrel.
The first high-level Opec talks are due to take place at the World Energy Congress in Istanbul, which will be attended by key Opec oil ministers, including Saudi Arabia’s Khalid Al Falih.
Russia’s president Vladimir Putin also is scheduled to appear, together with energy minister Alexander Novak. However, Russia has only supported Opec’s efforts while making no commitment to curb its own output, which reached a post-Soviet record of 11.1 million bpd in August.
Istanbul is the first of a series of meetings to be held by Opec ministers and the high-level committee set up in Algiers in the run-up to the next regular ministerial session in Vienna on November 30, when a deal is expected to be announced.
Opec’s secretary general, Mohammad Barkindo, said last week that the change in strategy decided at Algiers was driven in part by “weaker than desired global growth”, which Opec expects will slow oil demand growth from 1.3 per cent this year to 1.2 per cent next year, when it is expected to be about 95.4 million bpd.
He also noted that the oil price collapse had led to a massive decline in investment by the industry, which set up the likelihood of wild oil price swings in the future.
But, Mr Barkindo told the G24 meeting in Washington on Thursday, “it is important to underline that things have progressed further over the past week … and the high-level committee initiated by the Opec conference is moving forward on the implementation of the Algiers decision.”
But there is a great deal of scepticism about a deal and its effectiveness, both in terms of how it would be enforced as well as the likelihood that even if successful it would be self-defeating.
As Goldman Sachs advised its clients: “Strictly implemented in the first half of 2017 and all else constant, the production quotas announced today should be worth $7 to $10 a barrel to the oil price. [But] compliance to quotas is historically poor, especially when oil demand is not weak … [and even] if this proposed cut is strictly enforced and supports prices, we would expect it to prove self-defeating medium term with a large drilling response around the world.”
amcauley@thenational.ae
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