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Published: Wed, November 30, 2016
Economy | By Melissa Porter

Saudi-Iran rivalries could scuttle tentative OPEC deal


One day ahead of OPEC's much anticipated meeting in Vienna, oil has slid back under $46 on rising pessimism that an oil production cut deal, taken widely for granted as recently as last week, is going to take place.

At 5pm today, the KLCI closed at 1,626.93 points on losses in oil and gas-related shares like SapuraKencana Petroleum Bhd and Petronas Gas Bhd.

The price of oil dropped and stock markets were mixed Tuesday as it became uncertain whether OPEC countries might reach an agreement to cut crude production at their meeting this week. Decliners overwhelmed gainers at 543 against 214 respectively.

USA benchmark West Texas Intermediate also fell 1.78 per cent to $46.24 a barrel and pulled stocks down with it.

Saudi Arabia's push for OPEC's first oil production cut in eight years comes as its finances fall into disarray. The contract jumped $1.02 to close at $47.08 a barrel on Monday.

"There are the ones that they need to produce more". Iran suggested a deal whereby it freezes production at 3.975 million barrels a day, or about 200,000 barrels a day above its current output, according to two Opec delegates with knowledge of the talks. On Tuesday, the USA benchmark fell $1.85, or 3.9 percent, to $45.23 a barrel.

"The same obstacles toward a deal remain", said energy consultants Wood Mackenzie in a research note: "A reluctance on the part of key producers to cut production and lose market share".

Earlier this month, OPEC's biggest producer Saudi Arabia offered to cut its output by 500,000 barrels per day (bpd).

That said, in keeping an appearance of optimism, Iraq's minister told reporters in Vienna on Tuesday that he's still very confident about the OPEC meeting.

Intense negotiations would be needed on Wednesday to cement a deal, Goldman Sachs said.

Meanwhile, the Algerian and Venezuelan oil ministers were travelling to Moscow overnight in a final attempt to persuade Russian Federation to take part in cuts instead of merely freezing output, which has reached new highs in the past year.

The oil price has whipsawed through much of the year on "will they or won't they" speculation over whether OPEC will strike a production deal.

However, executive director Fatih Birol told Bloomberg that could also trigger further United States production and so "put downward pressure on prices again within nine months to a year".

Corrections & Amplifications: Saudi Arabia's energy minister Khalid al-Falih and Iran's Bijan Zanganeh are set to arrive in Vienna for the OPEC meeting on Tuesday.

The third scenario is that OPEC fails to agree any kind of deal. Prices fell to multi-year lows of $27 per barrel in January 2016.

Prices have been higher in recent days as traders bet on the increased likelihood of Opec next week securing its proposed production cut of up to one million barrels a day.

"We expect demand to recover in 2017, then prices will stabilize, and this will happen without an intervention from OPEC", Al-Falih said in Dhahran, eastern Saudi Arabia, on Sunday, according to the Saudi newspaper Asharq al-Awsat.

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