The markets are so desperate for deals – that they took two half baked, tentative, unofficial sidelines talks for deals, and even reacted positively on them. But then the international markets – both energy and stocks – needed some sort of impetus, however, hollow it may be. Russia’s meeting with Saudi Arabia, and the USA’s with china on the G20 summit sidelines, have sent a fresh ray of hope, to the extent that some have already started calling it as the “start of the next bull run”.
It was as recent as November, when the international crude oil prices fell the highest for a month in a decade. The 23 percent dip had taken the WTI under $60/bbl – and as it so often happens – speculations of oil back in the $30s were aplenty. It seems to have changed – or at least averted for now – as the officials from Saudi Arabia and Russia are believed to have reached an agreement in principle to extend the oil production cut – with Russia ready to extend its cooperation as a non-Opec member.
That said, the Opec meeting is just a week away – and there have not been any details of the cut made public yet. Given Russia’s relative comfort with oil price in the current range, given its budget target of oil at $43 – it is difficult to see Russia agreeing for more cuts from previously agreed levels. The most likely outcome could be the continuation of production at current capped levels, without any new freeze levels for member and non-member countries.
Saudi Arabia, on the other hand, has oil budgeted at $87 for their needs, and is therefore, understandably the ore desperate, busiest, and the one with the highest commitment to all Opec deals so far. But there is going to be a limit to how much can Saudis reduces the pumping – because the US President Trump has been very open and candid on why the world, Saudi Arabia included needs to continue pumping more. It is difficult to see Saudi Arabia going for a drastic cut from current levels, given the nature of its relations with the US.
What goes in favour of the Opec and Russia is the fact that an unexpectedly sizeable cut was announced by Canada at the start of the week – to the tune of 325,000 barrels a day. This provide Opec and Russia with an opportunity to not worry about current production levels – even if they fail to agree to further reduced levels.
Finally, China and the US officials are reported to have agreed to settle the trade war issues – and that the tariff impositions may well have been delayed for now – if not settled. This means another few months of breather for the oil market, in terms of certainty of demand, before the issue comes back as the biggest demand dampener in three months time. For now, oil seems to be correcting some of the last month’s losses.
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