EMEA News
Russia Viewed As Holding All the Cards Ahead of OPEC Meeting
Trepidation rather than anticipation towards the Organization of the Petroleum Exporting Countries (OPEC) meeting to discuss a production cutback extension resulted on Tuesday in a 12 cent drop for U.S. crude - with the uncertainty about whether an extension will be agreed upon revolving around Russia, whose president one analyst believes has more power over oil prices than all of OPEC.
West Texas Intermediate ended Tuesday's session down 12 cents at $57.99, while Brent dropped 20 cents per barrel to $63.64.
Although many OPEC members such as Saudi Arabia and Iraq have clearly voiced their support for an extension of the cuts that so far have had middling effect on the crude market, Goldman Sachs analysts said, "We believe that the outcome of this meeting is much more uncertain than usual.
"We view risks to oil prices as skewed to the downside this week as we believe that current prices, time spreads and positioning already reflect a high probability of a nine-month extension."
Citigroup expects OPEC to extend the deal until the middle of next year instead of the end of 2018 - and that this will cause a price sell-off; Citi also pointed out that the Russian central bank worries that higher oil prices could cause the ruble to rise, thus possibly stunting economic growth.
Meanwhile, Wood Mackenzie predicted that if the cut ends in March, there will be an estimated 2.4 million barrel per day year-on-year increase in world oil supply for 2018.
Despite the many factors that could render an extension ineffective anyway (including a host of nations refusing to participate in any production cuts), all eyes this week are on Russia, which Bloomberg describes as "dragging its feet" with regards to supporting the deal, adding that "Moscow is concerned that supporting oil prices above $60 a barrel will only abet the resurgent U.S. shale rivals most to blame for the glut."
Helima Croft, managing director at RBC Capital Markets, thinks Russian president Vladimir Putin will have a bigger influence on the November 30 OPEC meeting than even the Saudis, and she told CNBC, "Putin is keenly aware that he can't cut funds to social programs; he has elections coming up in March, and the last thing he needs is a plummeting price for crude into these elections."
Still, CNBC worried that Putin might not agree to the extensions and would "send the oil markets into a tailspin."
Only one thing seems certain two days from now, and this was summarized by Suhail bin Mohammed al-Mazroui, energy minister for the United Arab Emirates, who told media before departing for Vienna on Tuesday for the OPEC meeting, "It will not be an easy meeting and we always look at various scenarios."
Earlier this month, Chris Weafer, senior partner at Macro-Advisory, said it would make "perfect sense" for Russia to quit the OPEC deal, because it would allow the former Soviet Union to continue diversifying its economy away from oil dependency.
