JAKARTA (TheInsiderStories) – Yesterday, the Organisation of Petroleum Exporting Countries (OPEC) has ended talks in Vienna without a deal on oil production cuts. That left the oil market dangling in uncertainty before non-OPEC allies joined a second day of talks.
The decision from this meeting is crucial for the oil and gas market. Brent Oil in London tumbled as much as 5.2 per cent to $58.36 a barrel, before paring losses to $59.34 followed the first day meeting.
OPEC’ plan to cut crude oil production to prop up the weakening price may fail, if Russia,—a non-OPEC member oil exporter—does not agree to the changes. OPEC proposes to cut crude oil production by 1 million barrels per day, assuming Russia contributes 150,000 barrels cut per day.
But if Russia agrees to cut 250,000 barrels per day, the total overall cut can be 1.3 million barrels per day. Russian officials are still in discussions over the issue.
Moscow will state its decision today. Russia officials have previously warned that it won’t be easy to cut oil production during winter. On the other hand, the Unites States disagrees with the production cut, and the desire for low oil prices.
Suhail Mohamed Al Mazrouei, UAE Minister of Energy and Industry, and President of the OPEC Conference in his opening speech stated, looking back on 2018 has been a positive year for the oil market.
He stated, the market has seen further rebalancing and there has been excellent collaboration between OPEC and non-OPEC participants in the ‘Declaration of Cooperation’.
“There is no doubt to date that the ‘Declaration’ has been a success, helping deliver more optimism to the market, confidence to the industry, and it has received backing from other producers, as well as from consumers, and various global institutions,” said Al Mazrouei.
However, look forward to 2019, he saw a new set of challenges. This includes the general consensus that prospects point to higher supply growth than expected global requirements and there are signs of a potential slowdown in demand.
“Today, it is vital that we thoroughly examine the potential gap between supply and demand in 2019, and how this might impact inventory levels and the extremely ‘hard won’ market balance we have achieved over the past two years,” he added.
Al Mazrouei urged the OPEC+ need to focus on the joint efforts to maintaining the balanced market has achieved in 2018, sustaining the stability, and, ensuring that there is a firm foundation to allow the industry to make the necessary investments to continue to meet expected future oil demand.
He noted, this will require to change the strategy has been took in June 2018. In this regard, he reminded is essential that the members OPEC to move ahead with a more permanent relationship with non-OPEC producers, in order to continuously adapt to ongoing market dynamics, and to help meet the challenges, as well as opportunities, that we will face in the months and years ahead.
Some countries, like Iran has pushed the organization to cut the group production of around 1.4 million barrels oil per day (BOPD). OPEC needs a unanimous vote to pass the decisions.
If failure, said Iran’ OPEC Governor Hossein Kazempour Ardebilione, would send oil prices plunging to US$40 a barrel. Saudi Arabia’s minister Khalid al-Falih even said that OPEC+ needs to figure out what the group to be done and by how much volume.
Oil prices have plunged by around 30 percent from early October as the market started to fear an oversupply is building up again, due to record high production in Saudi Arabia and Russia, and an all-time high oil output in the United States, coupled with fears of slowing economic and oil demand growth.
The King Salman’ country tendency is to cut aggressively and would unilaterally lower exports starting this month. Even though Russian President Vladimir Putin said only wants to cut output by 150,000 BOPD, which would mean more heavy lifting by Saudi Arabia to balance the market.
Furthermore, President Donald Trump administration are eager to tighten the screws on Iran, as the country was in the midst of preparing to issue waivers for eight countries importing oil from Iran. The result could be much more Iranian supply knocked offline.
Previously, OPEC Secretary General, Mohammad Sanusi Barkindo stated, the organization remains fully committed to achieving and sustaining balance and stability in the market.