Opec now on the defensive

Dhaka,  Mon,  21 August 2017
Published : 18 May 2017, 15:06:50
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Opec now on the defensive

The Organisation of Petroleum Producing Countries (OPEC) on the defensive, with Saudi Arabia’s energy minister Khalid al Falih and his Russian counterpart, Alexander Novak - together responsible for more than a fifth of world oil production - announcing this week that they wanted the cuts extended by nine months rather than the previously mooted six, according to a global media report Thursday.

It was taken by even ardent oil bulls as a token gesture at best, with prices barely responding, hovering close to the $50 a barrel level that has anchored Brent so far in 2017.

The first quarter of the year can be notoriously weak for demand once refiners have made their supplies of winter heating fuel, so there is little cost for Riyadh or Moscow in pushing to extend the length of the deal until next spring.

A bolder gambit for a cartel confident in its ability to shape markets might have seen Opec move to deepen the cuts but shorten their duration, taking more barrels out of the market over the peak demand summer months.

This would be one way to quickly draw down the inventory overhang and remove an obstacle to stabilising prices at a higher level, which most members desperately need to help balance their budgets.

- SZ
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