Monday, 19 November, 2018

Pradhan to raise fuel hike issue at OPEC meeting

WTI Crude Oil Daily August WTI Crude OilMore
| 22 June, 2018, 16:15

Due to the staunch opposition to any production increase from the faction led by Iran and Venezuela, analysts expect this week's OPEC meeting to be a very hard one, comparing it to the 2011 meeting, which the then Saudi Oil Minister Ali al-Naimi described as "the worst OPEC meeting of all time", Commerzbank commodities analyst Carsten Fritsch told Reuters.

There is a risk that traders are expecting a little bit too much heading into the meeting and could reshuffle their positions upon speculation that OPEC will not increase production to the amount now being priced in by the market between 500,000 to 1 million barrels a day. A quota increase of that size shared among all members wouldn't deliver a commensurate boost in production because several countries, including Venezuela where economic crisis is slowly destroying the oil industry, are unable to raise output.

Brent reached a 3-1/2-year high above $80 a barrel last month but has fallen steadily in recent weeks as Saudi Arabia, de facto leader of OPEC, has signaled it intends to raise production to stabilize prices.

In April-May, oil prices reached their four-year maximum. It appears that OPEC could increase production, and if they do that will bring a lot more supply onto the marketplace. Indeed, the single largest factor that could push prices down going forward would be a sizable increase in OPEC plus supply.

Greg McKenna, chief market strategist at futures brokerage AxiTrader said there would likely be oil price volatility in the week ahead of the meeting.

Since OPEC operates on the principle of unanimity, analysts expect some sort of compromise agreement to be thrashed out by Saturday. I mean, Iran, Saudi Arabia, Russia etc. China said it would impose tarrifs on a variety of United States goods, including crude and gasoline, in response to President Donald Trump's $50 billion levy on Chinese imports.

Back in January 2017, Russian Federation and Saudi Arabia agreed to curb global output by 1.8 million barrels a day to stem the slump in oil prices. The U.S. president repeatedly voiced his dissatisfaction with OPEC through social media accusing the cartel of driving up the oil prices, this consequently caused some turbulence in the market and resulted in Saudi Arabia's reaction.


Non-OPEC members including Russia, Oman and Mexico also agreed to cut 558,000 bpd off their production to stabilise the market.

The Organization of the Petroleum Exporting Countries and allies, which have curbed supplies since 2017, meet on Friday in Vienna, where they had been expected to come to a decision as to whether to increase global oil production, and by how much.

Shipping data in Thomson Reuters Eikon shows that U.S. crude oil shipments to China have soared in value recently, jumping from just US$100 million per month in early 2017 to nearly US$1 billion per month now. Brent crude jumped $1.55 to $74.99 a barrel.

"We could see prices ease a little bit lower because of this", he says, "but shale country is looking pretty good at the moment".

"They stand to lose if production is increased", said Schieldrop.

Commodity prices are under pressure as the USA dollar continues to rise.

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