Crude Up as OPEC Indicates No Output Hikes, Long Term Cooperation Deals

by Ship & Bunker News Team
Tuesday September 18, 2018

Even though the Organization of the Petroleum Exporting Countries (OPEC) remains committed to maintaining a healthy global crude market, its definition of healthy only stoked worries among the trading community, which in turn caused oil futures on Tuesday to rise by over 1 percent.

Brent climbed $1.01 per barrel, or 1.3 percent, to $79.06, while West Texas Intermediate rose 94 cents, or 1.4 percent, to $69.85 per barrel.

The gains were spurred after OPEC sources told media that no immediate action was planned to raise output to compensate for shrinking supplies for Iran, and instead when ministers from OPEC and non-OPEC producing countries meet on Sunday, it will be to discuss compliance with current output policies, including how to share a previously agreed output increase.

The crude gains were also due to unnamed sources in Saudi Arabia telling Bloomberg that while the kingdom has no desire to push prices above $80 per barrel, it may no longer be possible to avoid it in the short-term when the U.S. sanctions affecting Iran's petroleum sector come into effect on November 4.

It's not yet possible to determine the veracity of the comments made by the unnamed sources, but it's worth noting that Alexander Novak, energy minister for Russia, said an oil price between $70 and $80 was temporary and sanctions-driven, and that the long-term price would stand around $50 per barrel.

It's also worth noting that Tuesday's crude market performance was inspired, as usual, by short-term concerns; indeed, as far as OPEC is concerned, it's the long view that really matters, and to that end Mohammad Barkindo, the cartel's secretary general, told a news conference in the United Arab Emirates on Tuesday that OPEC and non-OPEC countries plan to ratify a framework for long-term cooperation when they meet in Vienna later this year.

He said, "Our determination is to institutionalize this cooperation and to get the permanent framework hopefully by December."

He also corroborated some of the unnamed sources' comment by stating that the producers will discuss at a meeting in Algeria on September 23 the best way to ensure they reach 100 percent compliance with crude supply targets.

The ever-optimistic Barkindo has not been entirely consistent in his messaging of late: earlier this week he stated that global demand for crude "is robust," which directly contradicts a previous statement that tensions between the U.S. and China as well as other geopolitical factors will cause demand growth this year and next to decline.