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Crude crunch: OPEC expected to resist pressure to increase output

Business Middle East

Crude crunch: OPEC expected to resist pressure to increase output


All eyes are on Vienna for this week’s OPEC meeting amid a rift between members of the cartel and other major oil producing countries. The issue is the same as at the last meeting in November – whether to cut output due to reduced demand and abundant supply. Saudi Arabia and Gulf states believe that a recovery is underway and that pricing is getting back on the right track.
Oil producing countries outside of OPEC have asked for action to support oil prices.

Crude prices have dropped to levels around $65 a barrel – much lower than before the OPEC’s previous meeting. The decision then to leave output at 30 million barrels a day led to a deterioration of prices estimated at around 60%. January’s prices collapsed to $46 per barrel, though there has been a recovery in recent weeks.

Saudi influence
Saudi Arabia plays a key role in OPEC decisions and is likely to stick with the same strategies that maintain market share. Other Gulf states have the same view, believing prices are recovering and on an upward path.
Experts don’t think OPEC will change its policies at its meeting on June 5, despite anticipated meetings ahead of the conference between members and oil producing countries outside of the organization, led by Russia.
Two major events later in June may, however, affect market rates; a Federal Reserve meeting and a possible agreement between Iran and leading world powers negotiating with Iran on its nuclear programme.

Middle East view
For further analysis of what is at stake in the forthcoming meeting Daleen Hassan spoke to Nour Eldeen Al Hammoury, Chief Market Strategist at ADS securities in Abu Dhabi

Daleen Hassan
“Several reports indicate no change in OPEC policy. If this happens what does it mean for oil traders, and what are the best scenarios for the market?”

Nour Eldeen Al Hammoury:
“Leaving the current policy and the production unchanged in this meeting might not have a notable impact on the market or the traders sentiment, as the markets are already prepared for a production to be held at its current level. This is after remarks by some OPEC oil ministers. The best scenario for the market is to cut the production by 1 million barrels, which would be likely to lead to a stabilization, or event help prices to rise further to $70.

Daleen Hassan
“How significant is the Fed’s decision and how will it affect the oil market?

Nour Aldeen Al Hammoury
“The drop in oil prices this year and the last year was related to the expectations that the Federal Reserve Bank is going to raise the
interest rate in June.

“The rising USD last year and this year had a notable impact on oil prices and it was one of the reasons why oil collapsed, as traders were pricing in a rate hike by the Fed, However, recently, the view has changed. If the Fed keeps the rates on hold, this should be a negative factor for the US Dollar. So, oil may rise further, and likely lead to more stabilization.

Daleen Hassan
“How could an Iranian agreement with the major powers affect things? Could it make Saudi Arabia revise its oil strategy?

Nour Aldeen Al Hammoury
“It depends on what Iran will be able to do after the deal, whether they will be able to export one million barrels to the market right after the lifting of sanctions, or if that was just remarks made by ministers. However, reaching a deal with Iran is considered as a negative factor for oil, especially if the sanctions were to be lifted immediately.

As for Saudi Arabia, we don’t believe that they will change the current strategy. They have high levels of reserves, which would help them overcome any challenges.”

Business Snapshot
A high level scandal in FIFA caused the Qatar stock market to tumble last week. While the investigation is ongoing, market analysts expressed the view that if Qatar lost its right to host the World Cup, it would likely impact on the market and lead to a temporary decline.

“Qatar’s Exchange fell sharply on Wednesday and Thursday”: after news of the scandal and the announcement of investigations against top officials.
On Thursday, Qatar’s index closed with fall of more than 3%, its biggest one-day fall slide in five months, and sank to its lowest level in five weeks.
Swiss authorities have begun criminal proceedings against FIFA officials on suspicion of involvement in the mismanagement and reception of funds in relation to FIFA’s the bidding process for the World Cup in Russia in 2018 and Qatar in 2022. Doha and FIFA deny any wrongdoing.

Economists predicted any eventual decision to take the hosting rights away Qatar would have a limited effect on the market. Amnesty International has appealed to FIFA to put pressure on Qatar to implement real reforms that would protect workers who are constructing stadiums for the Qatari World Cup.


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