OPEC Delays Detail On Output Curbs

By Glenn Dyer | More Articles by Glenn Dyer

No decision on a cut to oil production by OPEC or anyone else – news that has added to the uncertainty in global markets overnight Thursday caused by the arrest in Canada of a senior executive of Chinese telecommunications equipment maker Huawei which saw markets in Europe and the US sell off again.

Australia ignored the arrest news late in Thursday’s session, but won’t today with another 40 point plus loss looming when trading starts on the ASX.

The arrest of Huawei’s chief financial officer arrested in Canada at the behest of American authorities isn’t just an ‘ordinary’ detention.

Sabrina Meng is the daughter of the Chinese telecommunications giant’s founder and recently emerged as his potential successor.

The news has enraged the Chinese government, adding to pressures caused by the uncertainty around the so-called weekend truce between Donald Trump and China on the trade war he started.

That has tended to overtake the oil market news which had been shaping as a case of just waiting for the size of the production cut to be announced. None came.

In fact, oil prices fell almost 5% at one stage on Thursday before and during the meeting as it became clear there would not be an agreement on a production cap.

A decision was put off until Friday amid reports arguments and disagreements about the idea of a cap and its size

Brent crude fell under $US59 a barrel and US West Texas crude futures dipped close $US50 a barrel after Saudi Arabia signalled that producers were working towards a deal to cut output that will fall short of market expectations.

US crude was down more than 3% at $US51 a barrel just before 6am Friday and Brent was also down more than 3% at just over $59 a barrel.

Khalid al-Falih, the kingdom’s energy minister, told reporters ahead of a meeting of oil ministers in Vienna that Opec and allies outside the cartel including Russia were still working towards a deal by Friday.

He told media after the meeting that a decision had been put off until Friday and a meeting with non-member producers, led by Russia, indicating the lack of agreement.

Going into the meeting Thursday there was talk of a 1.4 million barrel cut, and it was reported that Saudi Arabia is keen for a cut of only 1 million barrels.

After Thursday’s meeting, Saudi Arabia’s Energy Minister Khalid al-Falih told reporters that he was “not confident” that OPEC and its oil-producer allies would reach an output-cut agreement on Friday, according to various news reports.

Dow Jones reported that Iran’s OPEC governor told reporters that the cartel has reached “some sort of agreement” but he also said that Iran, Libya, Nigeria and Venezuela aren’t on board with the final OPEC deal. He added, “there is a lot of discontent in the room,” according to Dow Jones reports.

At the June OPEC meeting, Saudi Arabia pledged to relax oil curbs that had been in place since January 2017, to compensate for a drop in Iranian exports as sanctions kicked in, taking its output above 11m barrels a day. Russia and the US have boosted production as well and the trio now account for more than a third of daily oil consumption.

But worries about a global economic slowdown that could hit oil demand and a rise in crude stockpiles again (led by the US), has seen world prices fall 30% in the last three months.

The last time the OPEC/Russia group agreed to curtail output, in late 2016, it settled on a combined 1.8 million-barrel-a-day reduction. In meetings ahead of Thursday’s talks, OPEC delegates had talked up a cut as 1.3 million barrels a day next year.

Now it could be a million barrels a day at best, which won’t support prices for long, if at all.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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