By AFIQ AZIZ / Pic By AFP
All eyes are on Russia to agree on the world oil supply cuts in order to push the commodity prices to the stable bracket again.
FXTM research analyst Lukman Otunuga said albeit OPEC’s clear stand on cutting oil output, the cartel’s failure to decide on the exact percentage of how much crude will be taken off the markets had sent the commodity prices tumbling more than 3% immediately.
“With OPEC waiting on non-OPEC members before making any decision on production cuts, Russia clearly has a significant role in the deal,” he said in a statement last Friday.
OPEC countries, which contribute some 30%-40% of the world’s crude oil, held a meeting last Thursday at its headquarters in Vienna, Austria.
The engagement was supposed to conclude an agreement on a joint output policy with non-OPEC production giant Russia.
However, the cartel had to postpone its decision to a day later, awaiting support from Russia’s administration. The delay caused oil prices to fall below US$60 (RM249.95) per barrel last Friday.
Oil output from the world’s biggest producers — OPEC, Russia and the US — has increased by 3.3 million barrels per day (bpd) since the end of 2017, to 56.38 million bpd, meeting almost 60% of global consumption.
Oil producers have been hit by a 30% plunge in crude oil prices since October, as supply surged just as the demand outlook weakened amid a global economic slowdown.
“Markets expect production cuts to be anywhere between one million and 1.5 million bpd from November’s level — with one million acting as the lower limit to support oil prices.
“With Saudi Arabia proposing to cut OPEC production by one million bpd, the question remains whether Russia will be willing to play ball in supply cuts,” Otunuga said.
He also said if OPEC decides to cut oil production lower than expectations, it would disappoint the market and expose the commodity prices to downside shocks.
“However, oil bulls are seen making a swift return if the cartel is able to cut production by roughly 1.3 million-1.5 million bpd,” he added.
In the meeting, Iran also refused to cut its oil production, stating that it is a “red line” for the Islamic republic to make such a move.
“Investors should not overlook the fact that Iran has already stated it cannot participate in any production cuts until the US lifts sanctions, and this will most likely impact the production cut deal,” Otunuga added.
Last month, the US imposed sanctions on Iran, alleging the republic provides millions of barrels of oil to Syria.
The bi-annual OPEC meeting was also attended by Economic Affairs Minister Datuk Seri Mohamed Azmin Ali.
Malaysia was expected to seek an understanding on whether the country shall continue to cut output by 20,000 bpd, as it has “informal” obligations despite not being a member of the cartel.