Just two months after surprising markets by announcing oil output cuts, officials from OPEC, Russia and other countries meeting in Vienna this weekend find themselves pondering whether they need to dial down production again.
Their goal would be to prop up a market that has turned negative. Oil prices since mid-April have fallen more than 12 percent, pushing Brent crude to about $76 a barrel and West Texas Intermediate to $71.70.
The main reason for the slump: persistent fears of a slowdown in the global economy that, in turn, has created worries among investors and traders about weaker demand for oil and other commodities.
“They are faced with a market that is doggedly bearish,” said Raad Alkadiri, managing director for energy, climate and resources at Eurasia Group, a political risk firm.
Some analysts, though, say the producers group will be reluctant to adjust production, figuring that it will be too soon and possibly counterproductive.
Broader macroeconomic concerns “have driven most of the recent sell-off in oil prices, and key OPEC Plus leaders understand that additional cuts are unlikely to halt moves of this type,” analysts from Energy Aspects, a research firm, wrote on Thursday.
Prince Abdulaziz bin Salman, the Saudi oil minister and co-chairman of OPEC Plus, the group meeting this weekend, has suggested that he may further cut oil output to punish what he called “speculators” betting on lower prices.
“I would just tell them: Watch out,” he said at a recent conference in Qatar.
Prince Abdulaziz orchestrated the trims announced on April 2, but the jolt they gave oil prices wore off quickly. Brent is now selling for about 4 percent less than it did on the eve of the April decision.
Lower oil prices make gasoline more affordable. But Gary Ross, chief executive of Black Gold Investors, a trading and investment firm, said people who buy and sell oil around the world “are very insecure” for a variety of reasons including economic worries.
Traders also worry that the relationship between Saudi Arabia and Russia, never easy, will grow more tense, making it difficult for OPEC Plus, which combines the Organization of the Petroleum Exporting Countries with Russia and its allies, to agree on ways to manage the market.
The unease in the market is a problem for Prince Abdulaziz. Analysts say the Saudi government of Crown Prince Mohammed bin Salman wants crude to sell at $80 a barrel or higher to finance the national budget and ambitious development plans.
Some analysts believe the drop in prices could turn around in coming months. The International Energy Agency recently increased its forecast for global oil demand growth this year by 10 percent, to 2.2 million barrels a day, and said demand would outstrip supply. It said the rebound of consumption in China was “even stronger than previously expected.”
Some leaders of OPEC Plus would prefer to wait and let the production cut announced in April — amounting to one million barrels a day, or 1 percent of global production — percolate through the system, analysts say. Those cuts began in May, and will take time to have an impact on markets.
With the war in Ukraine to finance, Russia may be reluctant to cut its oil exports. Western countries have set a $60-a-barrel cap on Russian crude, and the country’s exports reached 8.3 million barrels a day in April, the highest level since the invasion of Ukraine, according to the International Energy Agency. Those exports were a result of Russia’s expanded oil sales to India and China after bans by the European Union and other Western countries.
But those expanded sales to India could generate a point of contention heading into the meeting: Saudi Arabia and the United Arab Emirates, another major Middle East oil producer, have seen their share of the Indian oil market fall, as refiners there purchase discounted Russian crude.
Another risk is that any potential cuts will again be shrugged off by the markets, further undermining confidence.
“The ultimate danger is that an announcement of cuts would be interpreted as a sign of desperation,” said Richard Bronze, head of geopolitics at Energy Aspects.
In an unusual move, OPEC has declined to invite reporters from Bloomberg News and Reuters to attend the meeting. Two OPEC reporters from The Wall Street Journal were also excluded, but other Journal reporters did receive invitations. The New York Times received an invitation.
The move is widely thought to be an effort by the Saudis to muffle critical coverage. Prince Abdulaziz in the past has criticized media coverage of the group. The news organizations are still expected to cover the meeting, and reporters who are barred from OPEC headquarters can still interview officials outside the sessions.
An OPEC spokesman declined to comment.
A representative for Reuters said, “We are disappointed that Reuters has not been invited.” Bloomberg News declined to comment. Comment was not immediately available from The Wall Street Journal.
Vivian Nereim contributed reporting.
Source: New York Times
