OPEC evaluates to change course before the new price falls

(Bloomberg) – OPEC is experiencing one of the most vertiginous years in its history, from cutting oil production to rising as quickly as possible. And it may be necessary to reverse the course again.

Saudi Arabia and other producers who meet in Abu Dhabi face a worrying prospect this weekend: although US sanctions against Iran are eliminating significant amounts of crude oil from world markets, a new wave of shale oil American threatens with the creation of a new surplus in 2019.

Oil prices already reflect these concerns. Brent crude for January delivery fell by around 17% compared to a four-year peak reached in early October. The Organization of Petroleum Exporting Countries (OPEC) and its allies expressed concern and last month indicated that they may have to reduce almost historical production levels.

"The OPEC message seems to be: fasten seat belts," said Bob McNally, president of Rapidan Energy Advisors LLC, a Washington-based consulting firm. The group seems to be ready to "tighten the throttle as much as possible to increase production, then immediately press the brakes hard enough and talk about cutting the offer".

If the group leader, Saudi Arabia, eventually decides that it is necessary to make new cuts, he will have to face a number of challenges.

Once again, it will have to guarantee the support of its rival transformed partner, Russia, which is less in need of high oil prices. The two countries initiated consultations on the subject, the Tass state press agency reported on Wednesday. There is also the risk of putting against the main geopolitical ally of the kingdom, the president of the United States, Donald Trump.

Powerful force

All this is far from the usual OPEC mantra of preserving stability and careful management of the market. Furthermore, it reflects the level of uncertainty in a market that is experiencing huge changes in supply and demand.

At the start of the summer, Brent rose above $ 86 a barrel, as the risk of a production deficit due to sanctions against Iran and the economic collapse of Venezuela have shaken the market . The losses of the two OPEC members threatened to cause the biggest supply interruption from the start of the decade.

However, great things are also happening from the other side of the supply equation, which means that the risk of scarcity may not last. OPEC has been in "a way to produce as much as possible" to reassure consumers, Saudi Energy Minister Khalid Al-Falih said in Riyadh last month. The kingdom has increased production to almost record levels, while Libya is extending more in five years.

Then there is the minor problem of American production. growing at the highest rate in a century, just when fuel demand is at risk due to the slowdown in emerging economies and the US trade war. and China.

Well furnished

At this time, global markets are "well supplied" in the assessment of the International Energy Agency, which provides advice to consumer nations. Projections by OPEC show that next year the world will need about 1 million barrels a day less than the 31.8 million that its 15 members pumped in September.

"They absolutely want next year to try to organize a reduction in production," said Ed Morse, head of commodities at Citigroup Inc. "Everything indicates a fairly weak balance: the global economy is slowing, China's trade tensions they are having a visible impact on the question ".

This weekend's joint ministerial monitoring committee (JMMC) meeting, a six-nation body representing the coalition of 25 countries, intends to be just an interim review before all ministers discuss politics next month in Vienna . However, it could give a significant signal of what will come.

"When OPEC examines the challenge with the history of shale in 2019, what should you do, should you start to tell it now?" Said Helima Croft, chief commodity strategist at RBC Capital Markets LLC. "In this JMMC, we will have some clues that OPEC must return to the management of the active market".

Original note: OPEC believes that the cuts in oil production in 2019 are still another turnaround in the U.

–With the collaboration of Elena Mazneva.

Reporter in the original story: Grant Smith in London, gsmith52@bloomberg.net, Javier Blas in London, jblas3@bloomberg.net

Editor responsible for the original note: James Herron, jherron9@bloomberg.net, Amanda Jordan

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© 2018 Bloomberg L.P.

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