OPEC bids to take back driver's seat
Eesha Muneeb
-ORE
International  crude  oil  prices spent a volatile September rising in response to market rhetoric in the lead-up to the International Energy Forum in Algeria, but it paled in comparison to Sept 28 after the Organization of the Petroleum Exporting Countries (OPEC) announced that its members had agreed to a supply cut
After rallying about 15 percent in August, momentum in ICE Brent and NYMEX WTI prices slowed down fleetingly before hitting choppy weather in September, spiking more than 6 percent when the OPEC production cut deal was announced. Front-month October Brent settled at USS49.06/barrels on Sept. 30, up from S45.45/barreIs on Sept. 1, and NYMEX WTI settled at S48.24/barrels. up from S43.16/ barrels.
Almost two years after OPEC decided to raise exports in its fight for market share, the group of oil producers at long last coalesced behind an output strategy that will see the organization rein in production to between 32.5 million barrels of oil
per.day (bopd) and 33 million bopd in a bid to support crude oil prices. This was announced by Iran's oil minister Bijan Zanganeh who met with Saudi Arabia's Khalid Al-Falih midweek.
The agreement had been discounted as hype by a majori ty of crude market analysts even as recently as a day before the final deal was announced. Saudi Arabia offered a day before the talks an initial production freeze proposal that would exempt Iran, Nigeria and Libya as special cases. Without Iran's nod of approval, no deal would be viable.
The idea of a production cut of any kind in today's oversupplied environment was tantalizing to investors, Now, however, the question of relevance arises. According to Platts estimates, OPEC pumped a total of 33.13 million bopd in August and aims to curb production under the new agreement within a range of 32.5 million bopd and 33 million bopd. Whether this reduction will be enough to support prices that have been languishing in a sub-S50 zone for most of the year is questionable.
However, speculation around the details of this deal is likely to continue to keep a floor under crude pric-
es till the next OPEC meet, which is scheduled for November, and when the group has said the discussion around individual member quotas and enforcement will be finalized.
Meanwhile, crude margins for physical refined products have improved across the barrel in recent weeks as fundamentals tighten amid a seasonal uptick in demand.
In fact, oil product crack spreads assessed by Platts out of Singapore rose steadily in September lo multi-month highs amid refinery maintenance and ahead of a seasonal uptick in winter demand.
Apart from the volatility in crude prices, rising Indonesian demand for 92 RON gasoline and seasonal refinery outages in North Asia amid returning petrochemical demand for naphtha have sent light-end cracks higher this month, while margins for residual fuels have rallied on regional maintenance and a possible uptick in hedging by companies ahead of winter.
Vacillating Nigerian production due to repeated militant attacks in the Niger Delta has also played a part in regional supply tightness, with Malaysian and Indonesian crudes meeting the demand from Indian
and other Asian buyers.
US production shows some signs of slowing down, falling 15,000 bopd in the week ended Sept 23 to 8.497 million barrels, according to EIA estimates. This, along with unexpected but frequent draws on crude stocks and a brief spate of tropical storms in the Gulf of Mexico earlier in the month, also helped buoy oil prices up.
US figures still remain at multi-year highs and higher crude prices have brought shale rigs back into business with the active drilling rig count standing at 418 as of Sept 23, having risen in 13 of the past 14 weeks.
Fundamentally, there is enough crude supply at the moment to absorb any drop in production by OPEC members.
The meager cutback in crude in the short term does not make the move insignificant. Rather, after a lengthy experiment with pumping at will. the group is trying to take back control via a strategy of active market management.
The writer is senior specialist Oil Price Assessments.