OPEC, allies discuss oil production policy in Vienna

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DPA: According to Reuters, oil producers from the Organization of Petroleum Exporting Countries (OPEC) and their non-OPEC allies have reached an agreement on continued production, in the second half of 2019, cuts at a planned meeting in Vienna on Monday for two days, analysts said.

However, it is not clear whether the 14 OPEC members and the 10 producers from outside the organization, led by Russia, will decide to further cut production or simply extend the cap of production cuts already over on Sunday.

Cyrus de la Robia, chief economist at the Commerzbank in Hamburg, Germany, said he has doubts about sticking to previous agreements to cut production.

OPEC and oil producers agreed last December to cut production by 2.1 million bpd, accounting for about one percent of global supplies, in a bid to reduce supply surpluses and boost prices.

OPEC member states provide about one-third of the world’s oil supplies and together account for about half of the world’s crude production with non-OPEC allies.

As a result, Brent crude prices from the North Sea rose by about $25 to reach $75 a barrel by the end of April, but prices fell in the following weeks, before recovery since mid-June.

Rising prices will lead to a more balance of the kingdom’s budget, being the largest oil producer in the world, with prices at $85 per barrel, according to the International Monetary Fund (IMF).

“The partial recovery in prices over the past two weeks has only been achieved with Saudi Arabia,” analysts at the Vienna-based consultancy JBC Energy said.

While Riyadh has adhered to an agreement to strictly cut production ceilings, other countries have been hit by continued restrictions on production volumes, which have led to a reduction in the volume of exports and, consequently, revenues.

De La Robia predicted that the lack of commitment by some countries to the production ceiling that may be reached at the meetings of Vienna during the next two days.

Russian President Vladimir Putin said on Saturday, on the sidelines of the G20 summit, that he had agreed with Prince Mohammad bin Salman, Saudi Arabia’s Crown Prince, Deputy Prime Minister, and Minister of Defense, to extend the OPEC Plus agreement to reduce oil production for another six to nine months, after the end of the current agreement on Sunday.

“We have agreed, and we will continue our agreements under any circumstances, and we will continue to support the continuation of our agreements, on the quantities previously agreed upon,” Putin said.

The repercussions of the US-China trade war and the tensions between Washington and Iran, the OPEC member, overshadowed the meetings, as did the crisis in Venezuela, which is also a member of OPEC.

The United States and China agreed, on the sidelines of the G20 summit of major developed and emerging economies in Osaka, Japan, on Saturday to resume trade negotiations. US President Donald Trump has said that he has agreed not to impose new tariffs at present on more US market imports from China, a temporary truce in a trade war between the two economic giants.

Trump said that he had an excellent meeting with his Chinese counterpart Xi Jinping in Osaka, noting that the negotiations were back on track and he was ready to reach a landmark agreement with Beijing.

On the possibility that the decisions reached in Vienna will have the desired effect, he said: De La Robia, depends to a large extent on expectations for the growth of the world economy.

Positive expectations tend to strengthen the oil market in anticipation of rising demand, against a pessimistic view that signals a decline in the needs of industry and individuals of petroleum products.

“If there are positive expectations, any decision reached by OPEC will bear fruit, and if pessimism prevails, OPEC will fail to curb these trends.” De La Robia said.