It was a lively week on the oil market as OPEC maintained its production adjustment and ratified a Charter.
Geopolitical tension still remains and in Friday trading, Brent crude was priced above US$63 with WTI around US$57 a barrel.
An Iranian oil tanker was seized off the coast of Gibraltar by British marines as authorities claim it was making its way to Syria with a shipment of crude.
The Baniyas refinery is subject to European Union sanctions in place since 2011.
A spokesman from Iran’s foreign ministry called it “piracy” saying the seizure was “illegal” and threatened to retaliate by capturing a British ship.
The American national security advisor, John Bolton said this was “excellent news.” In a tweet he wrote, “America and our allies will continue to prevent regimes in Tehran and Damascus from profiting from this illicit trade.”
Extends production adjustment
The summer OPEC meeting delivered on its promise to extend the production adjustment agreement by nine months into March 2020 keeping 1.2 million barrels a day off the market.
The meeting was always going to be an ambitious one, with three days of consultation, bi-laterals as well as committee reviews.
Russia and Saudi Arabia set the scene last weekend at the G-20 meeting with country leaders lending their support for mutual cooperation on energy matters. The outcome was judged successful, delivering the roll-over the market wanted.
The ratification of a new Charter of Cooperation was another milestone for OPEC now formalizing the relationship with 10 supporting countries. This gives OPEC a wider mandate with strength from 24 members and with Russia leading the commitment from non-OPEC.
The Russian energy minister, Alexander Novak said that decision making was complex. “The OPEC Plus countries produce jointly about 47 million barrels a day,” adding that the wider group, “as responsible players have to analyze and keep in mind all the factors which the overall market needs response to; there is no single factor that drives our decision making process".
The energy minister from Saudi Arabia, Khalid al Falih has spent the last couple of years spearheading this effort, so he was naturally pleased with the outcome.
He said that re-balancing of the markets will continue in an attempt to remove the inventory overhang and prevent extreme volatility. He said that OPEC will be proactive in the future.
"The objectives of OPEC and OPEC Plus are similar, stability of oil markets in turn provides stability for energy markets broadly because other energy sources are interconnected in a direct and indirect ways with oil market and that has an impact on the global economy."
The minister of energy and industry from UAE, Suhail al Mazrouei said, “the dynamics are changing and together we are a stronger group and we are doing the right thing to stabilize the market.”
Caution on global economy
Analysts responded positively but cautioned about the state of the global economy and the knock-on effect on global oil demand. Joe McMonigle from HedgeEye Risk Management said that “OPEC is doing what it can do, it can’t control demand, so it’s focusing on supply.”
The details of the Charter of Cooperation will be elaborated in the coming months, but the main focus is to work towards reducing inventories and improving conformity to reassure the market that there’s unity in this bigger alliance.
The global head of commodity strategy at RBC Capital Markets, Helima Croft said that OPEC will continue to watch markets carefully but that now, they were probably in a better state to do so.
“This is a more formidable organization that can partner together, coordinate production, share information about market responses and coordinate responses.”
The OPEC Secretary General Mohammad Barkindo had his term extended for another three years and will no doubt continue his oil market diplomacy as he issues an invitation to other countries to join.
“I never wavered for a moment that we would not have a successful conference and appropriate decisions,” he said, adding “we had remained focused even in the depth of the downturn and our focus is to restore balance to the global oil market.”
With a firm commitment to better conformity on production, the OPEC Plus group will carefully watch the state of the economy and monitor the truce in trade talks with the US and China.
OPEC and friends will gather in Vienna again in early December, with many opportunities for dialogue and consultation in the months to come.