Crude oil is actually too cheap for the taste of many producers.
Energy ministers coming from Opec, the oil exporters’ group, are meeting at their headquarters in Vienna to do something about in which.
They will be joined by delegates coming from some oil suppliers outside the group.
On the agenda: whether to extend the oil production curbs agreed last year in which are due to expire next month.
- Oil cost jumps on production cut hopes
- Oil demand slows for second year
There is actually widespread support inside the group for taking This particular step, in addition to members could also discuss reducing the ceiling on oil output even further.
The formal meeting happens on Thursday however key bilateral talks will take place in Vienna hotels ahead of the official gathering.
Two key players have already agreed in which they want to extend the existing limit until March next year: Opec’s biggest producer, Saudi Arabia, in addition to Russia, the biggest exporter outside the organisation.
The problem for Opec in addition to additional oil exporters began almost three years ago, when the cost of oil began to slide.
North Sea Brent crude oil, which is actually widely used as a cost benchmark, hit a high of around $115 (£88) a barrel in June 2014 however by the end of the year in which was half in which amount.
While Opec members may not sell Brent crude, the prices they get for their oil do move in parallel to This particular benchmark.
in addition to in which got worse still coming from OPEC’s perspective; in January 2016 the cost of Brent fell below $28 a barrel.
Since then in which has rebounded, however has not got much beyond the mid-$50s per barrel.
in which partial recovery has taken some of the strain off Opec members’ finances. Many have also responded with cuts to government spending.
however they could definitely do having a stronger cost recovery.
What in addition to who is actually Opec?
- Formed in 1960, the Organization of the Petroleum Exporting Countries (Opec) coordinates the energy policies of member countries, who produce about a third of the globe’s oil
- Its members include Algeria, Angola, Ecuador, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE in addition to Venezuela
- many additional major oil-producing nations such as the US in addition to Russia are not Opec members
To take one example; last year Saudi Arabia had a deficit inside the government’s finances equivalent to 17% of national income. This particular year the IMF projects in which will be 10%.
in which’s a substantial improvement however still far too high for the long term.
Surpluses generated in times of higher prices inside the past mean the Saudis do not, however, have an imminent problem of unmanageable government debt.
What Opec in addition to a group of additional oil exporting countries including Russia have already done is actually cut back production in an effort to boost prices. They agreed in which last December.
The reduction was almost 1.8 million barrels per day – equivalent to about 2% of global oil production.
Often inside the past Opec countries have agreed to cut production however failed to comply with their own commitments. The temptation is actually for individual countries to cheat in addition to sell more while hoping in which others will cut production in addition to push prices higher for all.
This particular time, however, Opec discipline has been remarkably strong. The International Energy Agency (IEA) a rich countries’ watchdog, estimates compliance with the restraints is actually at more than 95%.
in which said, the agreement has not been very effective. Today the cost is actually actually a few dollars less than in which was on the day the deal was done. Without the cuts, though oil might have been even cheaper.
OPEC members do have a relatively fresh problem: the American shale oil industry. in which has grown coming from very little 10 years ago, to become a major player.
In fact in which made an important contribution to the abundant supplies of crude oil in which were behind the cost fall in which began in 2014. In 2005, US crude oil production covered a third of the country’s needs, currently the figure is actually more than 60%.
inside the early stages of the cost fall Saudi Arabia appeared to be willing to live with the decline inside the trust in which in which could put pressure on US shale producers in addition to force many out of business.
in which was uncomfortable for America’s oil industry however in which proved to be more resilient than the Saudis probably expected, in addition to their producers were very effective at reducing costs.
Total US oil production did decline in 2016, however in which is actually rebounding This particular year.
Opec’s production cuts have made space for additional producers in non-member countries in addition to the recovery in prices coming from their lows of early 2016 has eased the financial pressure.
One manifestation of the abundant supply is actually the fact in which stocks of crude oil held by refineries in addition to governments are well above normal levels; a fresh historical high inside the rich countries in March, according to the IEA.
The objective shared by Opec in addition to Russia is actually to get stocks down to the average level of the last 5 years.
The signs are in which Opec members are mostly well disposed to continuing the cuts beyond next month’s planned expiry. There may well be some debate about how long to extend them, in addition to there have been reports in which some could like to make the cuts deeper.
Outside Opec, Russia is actually in agreement however Kazakhstan wants to enhance production, while others have been holding discussions with Opec countries.
Assuming they do take extend the production limits, what will be the impact on oil prices?
They may stay towards the upper end of the recent range – however in which will take a while for those stocks of crude oil to come down to levels in which could support a stronger rally.
Opec’s likely action could certainly ensure in which prices don’t take a renewed dive however the prospect of a powerful surge in prices is actually not strong.
There is actually a fresh complication for the producers’ calculations. President Trump’s budget plan includes a proposal to sell half the oil inside the US government’s emergency reserves, the strategic petroleum reserve, starting coming from the next financial year.
in which is actually just a proposal at This particular stage however in which has still been enough to move international oil prices down.
Yet inside the longer term, the weakness of oil prices does perhaps contain the seeds of its own reversal.
The low prices have undermined investment in fresh production capacity inside the last two years, which in turn means in which there could be a supply crunch. The IEA has warned This particular could come sometime after 2020.
inside the even longer term, the big question for Opec is actually whether a shift away coming from oil-based transport fuels – in favour of electrically-powered vehicles, for example – will cast a shadow over the viability of their natural resources.