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Crude oil price jumped by more than five per cent yesterday after the United States and China agreed to a 90-day truce in a trade dispute ahead of December 6 meeting of the Organisation of Petroleum Exporting Countries (OPEC) that is expected to cut global supply.
The surge in crude oil prices is coming as Qatar said it was quitting OPEC from January 2019 to focus on its gas ambitions, taking a swipe at the group’s de facto leader, Saudi Arabia and marring efforts to show unity before this week’s meeting of the cartel to tackle an oil price slide.
The United States’ West Texas Intermediate (WTI) light crude oil rose $2.92 per barrel to a high of $53.85, up 5.7 per cent, before easing to around $53.
The global benchmark crude, Brent crude rose 5.3 per cent or $3.14 to a high of $62.60 and was last trading around $61.75.
China and the United States agreed during a weekend meeting in Argentina of the Group of 20 leading economies not to impose additional trade tariffs for at least 90 days while they hold talks to resolve existing disputes.
Reuters reported that the trade war between the world’s two biggest economies has weighed heavily on global trade, sparking concerns of an economic slowdown.
Crude oil has not been included in the list of products facing import tariffs, but traders said the positive sentiment of the truce was also driving crude markets.
Oil also received support from an announcement by the Canadian province of Alberta that it would force producers to cut output by 8.7 per cent, or 325,000 barrels per day (bpd), to deal with a pipeline bottleneck that has led to crude building up in storage.
OPEC meets on December 6 to decide output policy. The group, along with non-OPEC member Russia, is expected to announce cuts aimed at reining in a production surplus that has pulled down crude prices by around a third since October.
According to an analyst, markets are expecting to see a substantial production cut after Russian President, Vladimir Putin, said his country’s cooperation on oil supplies with Saudi Arabia would continue.
Qatar to Quit OPEC January 2019
Meanwhile, Qatar said yesterday it was quitting OPEC from January to focus on its gas ambitions, taking a swipe at the group’s de facto leader Saudi Arabia.
Doha, one of OPEC’s smallest oil producers but the world’s biggest liquefied natural gas (LNG) exporter, is embroiled in a protracted diplomatic row with Saudi Arabia and some other Arab states.
Qatar, which produces 600,000 barrels of oil per day, said its surprise decision was not driven by politics but in an apparent swipe at Riyadh, Minister of State for Energy Affairs Saad al-Kaabi said: “We are not saying we are going to get out of the oil business but it is controlled by an organisation managed by a country.” He did not name the nation. Al-Kaabi told a news conference that Doha’s decision “was communicated to OPEC” but said Qatar would attend the group’s meeting on Thursday and Friday in Vienna, and would abide by its commitments.
He said Doha would focus on its gas potential because it was not practical “to put efforts and resources and time in an organisation that we are a very small player in and I don’t have a say in what happens.”
Delegates at OPEC, which has 15 members including Qatar, sought to play down the impact.
But losing a long-standing member undermines a bid to show a united front before a meeting that is expected to back a supply cut to shore up crude prices that have lost almost 30 per cent since an October peak.
According to agency reports, it also highlights the growing dominance over policy making in the oil market of Saudi Arabia, Russia and the United States, the world’s top three oil producers which together account for more than a third of global output.
Riyadh and Moscow have been increasingly deciding output policies together, under pressure from U.S. President Donald Trump on OPEC to bring down prices. Benchmark Brent is trading at around $62 a barrel, down from more than $86 in October.
“It could signal a historic turning point of the organisation towards Russia, Saudi Arabia and the United States,” said Algeria’s former energy minister and OPEC chairman, Chakib Khelil, commenting on Qatar’s move.
He said Doha’s exit would have a “psychological impact” because of the row with Riyadh and could prove “an example to be followed by other members in the wake of unilateral decisions of Saudi Arabia in the recent past.”
Qatar, which Al-Kaabi said had been a member of OPEC for 57 years, has oil output of just 600,000 barrels per day (bpd), compared with Saudi Arabia’s 11 million bpd.
But Doha is an influential player in the global LNG market with annual production of 77 million tonnes per year, based on its huge reserves of the fuel in the Gulf.
OPEC members Saudi Arabia and the United Arab Emirates, and fellow Arab states Bahrain and Egypt, have imposed a political and economic boycott on Qatar since June 2017, accusing it of supporting terrorism. Doha denies the charges and says the boycott aims to impinge on its sovereignty.
Al-Kaabi, who is heading Qatar’s OPEC delegation, said the decision was part of a long-term strategy and the country’s plans to develop its gas industry and increase LNG output to 110 million tonnes by 2024.
“A lot of people will politicise it,” Al-Kaabi said. “I assure you this purely was a decision on what’s right for Qatar long term. It’s a strategy decision.”
Qatar’s influential former prime minister, Sheikh Hamad bin Jassim al-Thani, said on Twitter that OPEC “is only used for purposes that hurt our national interests.”
The exit is the latest example of Qatar charting a course away from its Gulf neighbours since the rift began last year.
It comes before an annual summit of Gulf Arab states expected to grapple with the roughly 18-month standoff.
Once close partners with Saudi Arabia and the UAE on trade and security, Qatar has struck scores of new trade deals with countries further afield while investing heavily to scale up local food production and ramp up military power.
“There is a sentiment in Qatar that Saudi Arabia’s dominance in the region and the region’s many institutions has been counterproductive to Qatar,” said Andreas Krieg, a political risk analyst at King’s College London. “It is about Qatar breaking free as an independent market and state from external interference.”
[ThisDay]
