OPEC Plus has finalised a deal with the world’s major oil producers that will see a 10% cut in output – the largest-ever reduction in production.
Prices for global benchmark Brent crude rose by 3.9% to $32.71 a barrel and US grade West Texas Intermediate went up 6.1% to $24.15 a barrel as a result of the end of the damaging price between Saudi Arabia and Russia.
Prior to the agreement, the market was flooded with oil even though demand was down due to the economic downturn caused by the coronavirus. Both factors combined had sent oil prices plummeting to their lowest levels for 18 years, at one stage to just $22.58 a barrel.
US President Donald Trump personally thanked the leaders of both countries, King Salman and Vladimir Putin, saying he believes will save “hundreds of thousands of energy jobs in the United States”.
A word of caution was struck by one analyst, however, who noted that the decline in oil demand is well ahead of the output cuts that have been agreed and that this will frustrate hopes of the price maintaining an upward momentum.
Further cuts may, therefore, be needed to bring supply and demand into equilibrium and make a lasting impression on the price.
OPEC consists of 13 nations, all of which have a significant chunk in the role of oil production in the world and influence on global oil prices.
According to a statement on OPEC’s website, its role is to “coordinate and unify the petroleum policies of its member countries and ensure the stabilisation of oil markets, in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry”.
All eyes will be on Vienna, on June 20-21, as The Organisation of the Petroleum Exporting Countries (OPEC) will host its 7th International Seminar at the Imperial Hofburg Palace.
Discussions between oil industry stakeholders will focus on reinforcing OPEC’s longstanding commitment to strive towards a secure and stable market in support of a healthy global economy.
As things stand, the oil market is anything but stable and this is reflected in energy prices affecting consumers in the UK, which are currently at a level higher than anywhere else in Europe.
In the energy market, there is a direct correlation between oil prices – over $80 a barrel at one stage last month – and the amount business consumers and homeowners pay for their fuel.
The mood in the room in Vienna could play a vital role in helping to calm traders’ nerves and enable the market to weather the “perfect storm” caused by a combination of geopolitical issues, safety concerns and diminished storage supplies, a summary of which can be found below.
So, should businesses stick or twist when it comes to procuring energy before the great and the good of the oil industry convene in the Austrian capital?
For those customers looking to make decisions on future pricing, it’s a tough call. There is more than enough evidence from historic pricing to indicate the current bullish run will come to an end, but the key is determining when.
If talks go well and OPEC agrees to remove some of the current production cuts, then prices, which have enjoyed a brief lull in recent days, could continue to come down. But if that fails to happen, they could easily rise again.
Knowing when to fix a price – and for how long – is one of the key pillars of energy management and we find that a proactive approach pays dividends.
If you would like to talk to one of our energy consultants and get some specialist advice on energy procurement and the other services we offer, please get in touch on, 01225-867722.
The Perfect Storm – why the oil industry has got energy users over a barrel
Red alert: The newly re-elected Venezuelan government appears intent on continuing its path towards a socialist autocracy and therefore runs the risk of reduced foreign investment and the application of stringent economic sanctions. Venezuela is one of the world’s top 10 largest oil producers.
Trumped: After November 4, the US will reimpose sanctions on Iran’s oil exports, as a result of its immediate withdrawal from the Iran nuclear deal. Iran currently contributes roughly 3.8 million of the 98 million barrels of oil produced daily worldwide. Most energy experts say that a revival of American sanctions on banks and other companies that do business with Iran could reduce Iranian production and exports by at least 10 to 15 per cent, and that drop could take six months or more to be felt. Either way, it’s very unsettling for the oil price markets.
Poles apart: Poland’s state-owned oil and natural gas company signed a five-year deal in November to import liquefied natural gas (LNG) from the United States. The deal was signed as Poland and the rest of eastern Europe work to dramatically reduce their dependence on pipeline-delivered gas from Russia. Traders are anxiously waiting by to see how Russia reacts.
Rough times: Continued outage problems with the main North Sea gas pipeline that supplies gas from Norway into the UK are a worry. One shutdown in December, for example, sent oil prices soaring. Falling storage capacity for natural gas has left UK supplies increasingly susceptible to short-term outages, with the shutdown of Centrica’s Rough storage site, the country’s largest facility, making the Uk even more reliant on imports from Norway.
Cracks appearing: Nuclear power is a mainstay of UK power generation, picking up around 20 per cent of the UK’s demand so ongoing safety issues at Hunterston B, and with other plants of a similar age, have been most unwelcome for all concerned. There are even calls for the nuclear reactor’s permanent shutdown due to cracks in the graphite core of the structure.