Oil prices dip on pre-OPEC nerves

2016 output deal has helped to reduce a global glut that had sent oil prices plummeting to less than $30 per barrel
Oil prices dipped on Tuesday in nervousness ahead of a meeting of crude producers at OPEC headquarters in Vienna (pictured) to discuss extending output cuts.
By AFP
Wed 29 Nov 2017 08:15 AM

Oil prices dipped on Tuesday in nervousness ahead of a meeting of crude producers at OPEC headquarters in Vienna to discuss extending output cuts.

Brent Crude fell 43 cents to $63.41 in London while in New York fellow benchmark West Texas Intermediate (WTI) fell 30 cents to $57.81.

Until now market expectations have been for 24 oil producers to prolong their 2016 deal on Thursday reducing output by 1.8 million barrels per day until the end of 2018.

But reports said that non-OPEC member Russia has misgivings, fearing that oil prices above $60 a barrel will allow rivals in the United States, who are outside the accord, to extract more oil and steal market share.

The deal among the OPEC and non-OPEC countries, first struck a year ago and which has already been extended until March 31, has borne fruit.

It has helped to reduce a global glut that had sent oil prices plummeting to less than $30 per barrel, tearing a hole in producers' public finances.

Oil prices are now at a near two-year high, with Brent Crude close to $65 per barrel and WTI recovering to over $60.

Inventories have also fallen to more normal levels. Growing optimism about the global economy and its effect on buoying oil demand, not least from China, has also helped.

"The current market conditions, the returning level of confidence and optimism in the industry are all evidence of the outcome of our joint efforts," Mohammad Sanusi Barkindo, OPEC secretary general, said on Monday.

Outline deal

According to Bloomberg News, members of the OPEC cartel and Russia have crafted the outline of an agreement to extend the curbs to the end of 2018.

Saudi Arabia is thought to be particularly keen since higher oil prices would help boost the value of national oil company Saudi Aramco, some of which it wants to sell next year.

OPEC and Russia are still hammering out crucial details, however, Bloomberg reported.

In September, Russian Energy Minister Alexander Novak suggested it was premature to discuss an extension, saying he wanted to wait until January for further data.

Kuwait too until recently was insisting that extension should be delayed until early next year, hoping the outlook would be clearer, Bloomberg said.

"We support an extension, we haven't agreed on a target yet," Kuwait's Oil Minister Issam Almarzooq said as he arrived on Tuesday at his plush Viennese hotel.

"Depends on what the scenarios will be."

'New Hitler'

A further possible complication could be the dramatic recent deterioration of relations between regional rivals Saudi Arabia and Iran, both members of OPEC.

Saudi Arabia's Crown Prince Mohammed bin Salman last week called Iran's supreme leader "the new Hitler of the Middle East".

Iran, following the lifting of sanctions under the 2015 nuclear deal, was allowed a moderate increase in oil production under the producers' accord.

For one of OPEC's founder members meanwhile, things are far from rosy. Venezuela, whose oil reserves are the world's biggest, is a whisker away from an all-out debt default.

Just when the South American country needs foreign currency more than ever, oil output is forecast to fall to a near 30-year low in 2018.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.