Abu Dhabi, UAEFriday 25 September 2020

Opec likely to deepen cuts after its Vienna meeting, analysts say

Joint technical committee of the producer group to meet in Vienna today and tomorrow

Opec secretary general Mohammed Barkindo, Saudi energy minister Prince Abdulaziz bin Salman and Russian energy minister Alexander Novak at an Opec meeting in Abu Dhabi in 2019. AFP
Opec secretary general Mohammed Barkindo, Saudi energy minister Prince Abdulaziz bin Salman and Russian energy minister Alexander Novak at an Opec meeting in Abu Dhabi in 2019. AFP

Opec+ could consider drawing back an additional 500,000 barrels per day from the markets to balance the oil markets, which have seen their worst rout in over a year due to the continued spread of the deadly coronavirus, say analysts.

The group, which is led by Saudi Arabia and Russia could explore further deepening of cuts to stop the slide in oil prices and are likely to present a more unified front in agreeing to further restrictions. A joint technical committee, comprising Algeria - which holds the Opec presidency this year - and Saudi Arabia, Russia, the UAE, Iraq, Kazakhstan, Kuwait and Nigeria will meet today and tomorrow at the Austrian capital.

The group is set to discuss a range of measures, including slashing production to stabilise the oil markets that have seen the worst rout in over a year due to the continued spread of the deadly coronavirus.

"We believe Opec+ will announce an additional production cut of at least 500,000 bpd for the second quarter, eventually extending the cuts until the end of the year, with a review at the next ordinary meeting in June," said Giovanni Staunovo, commodity analyst at UBS.

With prices declining nearly 20 per cent since early January, Russia's reticence to embrace additional cuts has given way to calls for decisive action.

"With Brent now trading below $60 per barrel, we expect the group to speak with a single voice once again," said Mr Staunovo.

Brent, which saw its largest slide for January since 1991, was up 0.74 per cent trading at $54.86 per barrel at 3.35pm UAE time, while West Texas Intermediate gained 1.53 per cent and was trading at $50.89 per barrel.

Russian President Vladimir Putin and Saudi Arabia's King Salman have confirmed their "readiness to continue co-operation within Opec+", following a rare phone call between the two leaders yesterday, according to a statement from the Kremlin.

Opec+ began the year with production cuts of 1.7 million bpd, with Saudi Arabia volunteering to cut an additional 400,000 bpd.

The group was set to meet in early March for a review of the pact. An Opec spokesman told The National that no decision has been taken to cancel the meetings set for March 5 and 6.

JBC Energy said in a note on Tuesday that reports of a possible 500,000 bpd cut by Opec had "failed to support prices".

"They gained back some ground in today’s early morning trading," the consultancy said.

"Expectation that Opec+ will react properly to the coronavirus shock will likely keep WTI crude bid near the $50 a barrel," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

"But the upside potential could remain limited given the uncertainties regarding the magnitude of the shock on future demand and solid net long positioning in speculative trades," she added.

Updated: February 4, 2020 04:36 PM

Editor's Picks
THE DAILY NEWSLETTER
Sign up to our daily email
Most Popular