Two interesting developments from Saudi Arabia. A female robot appeared in public, uncovered and without a male guardian, and, in front of an international audience at a technology conference in Riyadh, receiving the honour of citizenship – thus appearing to grant ‘her’ more rights than any other woman in the country. The country also announced it was backing the extension of OPEC production cuts beyond March 2018. (That’s what we’ll focus on – but we thought the Sophia story was worth highlighting if you missed it.)
As Crown Prince Mohammed bin Salman told Reuters that he wanted to see the cuts programme continue: “We are committed to work with all producers, OPEC and non-OPEC countries … We will support anything to stabilise the oil demand and supply,” Brent oil closed at a 27-month high.
Brent for December settlement was at $58.92/bbl on the London-based ICE Futures Europe exchange. Prices rose 1.5% to $59.30 on Thursday, the highest close since July 2015. Brent traded at a premium of $6.57 to WTI. “Oil remains buoyed by the solid global growth backdrop and the bullish market mood” said Norbert Ruecker, Julius Bauer Group’s head of commodity research in Zurich.
Since January OPEC plus Russia and nine other producers, have held to a daily cut of 1.8m bpd. The agreement was to run to March 2018 but comments from the group leaders seem to confirm that they’re committed to going beyond it.
Earlier this month Russian president Vladimir Putin said a deal to do just that was on the cards, saying: “Everyone is interested in a stable market. What we did with OPEC, I believe, is beneficial for all the global economy. When we decide on whether to extend or not, we will decide on the timeframe. But on the whole, if speaking about a possible extension, this should be at least until the end of 2018.”
The market may face some difficulty however in retaining its confidence over the next few weeks, as we move towards the next OPEC meeting. Abhishek Kumar, Senior Energy Analyst at Interfax Energy’s Global Gas Analytics says: “Price volatility in the oil market is expected to persist in the run up to the November OPEC meeting. Saudi Arabia’s bullish stance together with ongoing geopolitical tensions in the Middle Easy will remain supportive of prices. However, the market is also mindful of rising oil production in the United States and persistently high exports from the country, which will cap price gains.”
But that threat from the US is creating consensus among the group. Nigeria’s Minister of State for Petroleum Emmanuel Ibe Kachikwu said at the Africa Oil Week conference in Cape Town that the idea is supported. “If the aggressiveness of shale production continues at the pace that it is, you’re likely to see for quite a while an extension of this cooperation.”
It’s also being reported that as the group negotiates the extension of the deal, it is also working on the exit strategy. Bloomberg says that any plan is likely to follow similar strategies used by the Federal Reserve and other central banks when they are moving away from any period of ‘ultra-loose monetary policy’.
Choosing the right time is going to be challenging: often successful policies are continued even when they’ve achieved their objective and strategies should change. If the group waits too long, there’s a chance levels will fall so low that prices dramatically increase leading to an overproduction from shale drillers and we’ll be back at square one.
Maybe Sophia could help..