Oil main figures to stain fresh cuts when trade war hits prices
Dubai (AFP) – Top oil producers will consider fresh production cuts at a meeting this week, but analysts are skeptical that they will succeed in strengthening crude prices plagued by the US-China trade war.
OPEC petroleum exporters' cartel and important non-OPEC members want to halt a price fall that has continued despite previous production cuts and US sanctions that have pushed supplies from Iran and Venezuela.
Analysts say the OPEC + Joint Ministerial Monitoring Committee, which oversees a deal cut last year, has limited options when meeting in Abu Dhabi on Thursday.
UAE Energy Minister Suheil al-Mazrouei said Sunday that the group would do "what is needed" to rebalance the raw market, but admitted that the problem was not entirely in the hands of the world's top producers.
He spoke at a press conference in Abu Dhabi ahead of the World Energy Congress to start Monday, saying that the oil market is no longer governed by supply and demand, but is more influenced by US-China trade tensions and geopolitical factors.
The Minister said that although further cuts will be considered at Thursday's meeting, they may not be the best way to increase the price drop.
"Something that the group sees that it will balance the market, we are keen to discuss it and hopefully go and do what is necessary," he said.
"But I would not suggest jumping to the cut every time we have a question about trade tensions."
Although cuts may help prices, they can also mean that manufacturers are losing further market share, analysts say.
"OPEC has traditionally turned to production cuts to raise prices," said MR Raghu, research manager at Kuwait Financial Center (Markaz).
"However, this has come at the expense of the reduction in OPEC's global crude oil market share from a peak of 35 percent in 201[ads1]2 to 30 percent in July 2019," he told AFP.
The 24-nation OPEC + group, dominated by th e cartel kingpin Saudi Arabia and non-OPEC production giant Russia, agreed to reduce production in December 2018.
This came as a faltering global economy and A boom in US shale oil threatened to create a global supply product.
Previous supply cuts have largely succeeded in strengthening prices.
But this time, the market has continued to slide – even after OPEC + declined in June to extend by one month on a previous deal, reducing production by 1.2 million barrels per day (bpd).
– Trade War –
The new factor is the trade conflict between the world's two largest economies, whose tiff-for-tat tariffs have created fears of a global recession that would undermine oil demand.
Saudi economist Fadhl al-Bouenain said the oil market has become "very sensitive to the US-China trade war."
"What is happening to oil prices is beyond OPEC's control and certainly stronger than its ability," Bouenai told AFP.
"Consequently, I think OPEC + will not resort to new production cuts" because it will further deter the group's already shrinking market share, he said.
European benchmark Brent sold at $ 61.54 per barrel Friday, up from more than $ 75 this time last year, but up from around $ 50 at the end of December 2018.
The considerations also coincide with stymied production from Iran and Venezuela and slower growth in US production, which means supplies are not too high.
"Foreign shale production growth does not have the same momentum as in previous cycles, and OPEC production is 15 years low and has fallen by 2.7 million barrels per day for the past nine months," Standard Chartered said in a comment last month .
"We believe that the oil policy options for key manufacturers are currently limited," the investment bank said.
No decisions will be taken at Thursday's meeting, but it should make recommendations ahead of an OPEC + ministerial meeting in Vienna in December.
Rapidan Energy Group said the alliance may need to cut production by another million bd to stabilize the market.
But the problem will be to decide which member states will bend on the burden of new cuts.
Saudi Arabia, which is the de facto leader of the OPEC and pumps about a third of the cartel's oil, took over more than its fair share last.
It has also undergone a major shake-up in the oil sector and announced the replacement of Energy Minister Khalid al-Falih with Prince Abdulaziz bin Salman in the early hours of Sunday morning in front of a long-awaited stock list of state oil giant Aramco.
Bouenain said he believes that Riyadh will probably resist taking on further cuts, given the impact on the state's revenue.
Raghu said that "without a favorable solution to the dispute, OPEC's production cuts will not lead to a significant increase in oil prices."
