OPEC's boss says current market volatility is due to anticipation of the cartel's impending summit. File Image / Pixabay
Even though the analytical community believes the Organization of the Petroleum Exporting Countries' (OPEC) bid to reduce crude production (and reverse oil's recent price slump) is a fait accompli, mixed messages from various parties suggest it may be an struggle for the cartel to gain approval for the scheme when it convenes in Vienna next month.
John Kilduff, founding partner at Again Capital, on Wednesday noted that "A lot of folks threw in the towel and got as bearish as can be so now it was ripe for us to at least attempt to move back higher," and he added that OPEC's impending supply cuts "helped stock the bullish spirits back in here for the first time in a while" - a reference to modest price gains made on Wednesday by the Brent and West Texas Intermediate benchmarks.
Much of the expectations of the supply cuts were driven by earlier comments from Khalid Al-Falih, energy minister for Saudi Arabia, who told media that producers need to cut about 1 million barrels per day (bpd) from October production levels.
Mohammad Barkindo, secretary-general, OPEC
We remain focused.....to restore stability to this market
As for the justification for the cuts, the International Energy Agency on Wednesday pointed out that global oil supply will outpace demand due to a "relentless" rise in output and slower economic growth in some countries.
But while this argument at face value is persuasive, it's worth noting that less than a month ago most highly respected oil analysts were in a panic over the prospect of a global supply shortage due not only to the U.S. sanctions in Iran but plummeting output from Venezuela and other countries and figures showing strong, not weak, demand in 2019 and beyond.
For his part, Mohammed Barkindo, secretary general for OPEC, won't say whether his organization will impose cutbacks or not next month, only that "We remain very focused on our principle objectives which we have made clear in the most transparent manner you can think of; we remain focused jointly with our markets to restore stability to this market and we have registered some modest, I may say, achievements in that regard."
Barkindo also told CNBC that the recent crude price volatility "is the normal volatility that comes in the run up to our conferences."
OPEC faces potential challenges from various fronts, including members Iraq and Nigeria, both of whom have clearly stated their intention to increase production in 2019; meanwhile, Alexander Novak, energy minister for Russia, reiterated a familiar message to media on Wednesday, that no emergency action is warranted to stem a decline in oil prices.
He said, "It's not right for market participants to react to any one-off fluctuations," and he added that the oil market doesn't fully understand the fallout from sanctions against Iran.
Igor Sechin, CEO of Rosneft, agreed, adding it would be "silly" to make predictions about oil prices as it was unclear what action the U.S. might take, and what other major oil market players, including Saudi Arabia, could do in terms of adjusting production.
In the final analysis, the current worry about oversupply will likely be as fleeting as the recent fears about market tightening: earlier this week OPEC's latest monthly report conceded that there will be a 33 percent surge in global energy demand over the next two decades driven mainly by India and China - which, if correct, means analysts will soon return to fretting about dwindling stockpiles and the ability of producing nations to pump all-out.