Oil prices jump with OPEC on course to extend output cuts

  • 1 Jul 2019

OPEC and its oil-producer allies decided in December to trim daily crude output by 1.2 million barrels after prices tanked at the end of last year on fears of slower global growth.

The logo of the Organisation of the Petroleum Exporting Countries (OPEC) is seen at OPEC's headquarters in Vienna, Austria. July 1, 2019. ( Ihlas Haber Ajansi )

Oil prices jumped on Monday as OPEC nations moved towards extending daily oil output caps that helped the price of crude rise strongly this year.

Ministers from the 14-nation Organisation of the Petroleum Exporting Countries (OPEC) were meeting in Vienna on Monday to discuss output, before gathering a day later for OPEC+ – which is a grouping of 24 oil-producing countries that includes Russia and accounts for almost half of global crude.

"Everyone supported the proposition to extend for nine months the limits agreed in December," Novak said after a gathering of oil ministers and before the cartel's main meeting later Monday.

OPEC and its oil-producer allies had decided in December to trim daily crude output by 1.2 million barrels after prices tanked at the end of last year on fears of slower global growth.

This helped crude prices jump by a third in the first quarter of the year, boosting revenue for oil producing nations, but the deal ran only through to the end of June.

Russian President Vladimir Putin and Saudi Arabia grabbed headlines on Saturday with an agreement to extend the deal, which has helped soak up extra supplies on the market.

Putin announced that the pair agreed on the sidelines of the G20 in Osaka on an extension of between six and nine months.

The news sent New York oil prices shooting above $60 per barrel on Monday for the first time since May, with sentiment also buoyed by rising global equities after Washington and Beijing agreed to restart trade talks.

In afternoon deals, West Texas Intermediate crude for August delivery stood at $60.17, up 2.9 percent in value.

Excluding some oil players

However, the Russian-Saudi deal news sparked consternation among some major oil players, despite the fact that there is widespread support for an extension.

"I believe OPEC is going to die with this process," warned Iranian Oil Minister Bijan Namdar Zanganeh in reference to the fact that Moscow and Riyadh had already agreed their deal.

He added, "If OPEC wants to be alive, we should take decisions inside OPEC and not receive decisions from outside OPEC.

"We are not here to stamp some decision made outside OPEC," said the minister, who nevertheless supports the extension.

Iran, with production severely hit by US sanctions, is however exempt from the December cuts agreement along with crisis-stricken pair Venezuela and Libya.

OPEC 'not dying' 

Nigeria's delegation chief meanwhile played down talk that Riyadh and Moscow were "ganging together" in a deal that could potentially herald the death of OPEC.

"I wouldn't agree that OPEC is dying," said Dr Folasade Yemi-Esan, permanent secretary at Nigeria's Ministry of Petroleum Resources.

"If 24 countries are committed to working together, if those countries are still committed to this cooperation, I don't see how death is coming."

United Arab Emirates Energy Minister Suhail al Mazrouei also voiced his support for an extension – but stressed that any nation could still veto the Osaka agreement.

"Each country's voice counts and each country can veto a decision," Mazrouei stated.

Ample crude supplies

The cartel meanwhile remains on red alert over escalating US-Iran tensions that have fuelled recent strong oil-price gains – but it and other producers are unlikely to end output cutbacks just yet.

Saudi Arabia's influential Energy Minister Khalid al Falih, arriving in Vienna early on Sunday, declared that he wanted the cutbacks which began in January to be extended by nine more months to March 2020.

OPEC's meeting comes against a background of ample global crude supplies, according to both the cartel and International Energy Agency.

Saudi Arabia argues that oil supplies are sufficient, pointing to rising stockpiles despite significant output reduction in sanctions-hit Iran and Venezuela.

Worries over the global crude demand backdrop persist, particularly from the US-China trade war despite a truce agreed at the G20.

Added to the picture, the cartel has also lost market share to the United States, whose booming shale output has transformed it into the world's biggest oil producer as well as a net exporter.

Russia, the second biggest oil producer followed by number three Saudi Arabia, decided three years ago to hook up with OPEC to counter slumping oil prices.