Major oil companies to think of further cuts as trade war hits prices

DUBAI (AFP) - Major oil producers plan to cut production at a meeting this week, but analysts doubt they can boost oil prices as a result of the trade war between the two countries.

The cartel of OPEC oil exporters and key members not members of OPEC wants to stop the price decline that has continued despite previous production cuts and sanctions imposed by the United States that have reduces supply and Venezuela

Analysts say the OPEC + joint ministerial oversight committee, which oversees a supply-reduction deal last year, has limited options when it meets in Abu Dhabi on Thursday.

The obvious approach is to deepen the cuts.

But if it could help prices, it could also lead to further losses in market share, say analysts.

"OPEC has traditionally used production cuts to keep prices higher," said R. Raghu, head of research at the Kuwait Financial Center (Markaz).

"However, this has resulted in a reduction in OPEC's market share in the global oil market from 35% in 2012 to 30% from July 2019," he told reporters. AFP. .

The group of 24 OPEC + countries, dominated by the king of the Saudi cartel and the OPEC production giant Russia, agreed to cut production in December 2018.

This happened when a falling global economy and a US oil shale oil boom threatened to create a global supply surplus.

Previous reductions in supply have been successful primarily in price strengthening.

But this time, the market continued to fall, even after OPEC + agreed in June to extend a previous agreement for a nine-month period, reducing production by 1.2 million barrels per day.

Commercial War

The new factor is the trade dispute between the world's two largest economies, whose tariffs have fears of a global recession that will undermine demand for oil.

Saudi economist Fadhl al-Bouenain said the oil market has become "very sensitive to the US-China trade war."

"What happens with oil prices is beyond OPEC's control and is certainly stronger than its capacity," Bouenain told AFP.

"As a result, I think OPEC + will not resort to further production cuts" as this would further reduce the group's already shrinking market share, he said.

The European Brent benchmark was trading at $ 61.54 a barrel on Friday, up from over $ 75 in the same period last year, but from $ 50 at the end of December 2018.

The deliberations also coincide with the hampered production of Iran and Venezuela and the slower growth of US production, which means that supply is not excessively high.

"The growth of oil shale production in the United States does not have the same momentum as in previous cycles, and OPEC production is at its lowest point in 15 years, with 2.7 million barrels a day in free fall, nine months ago, "said Standard Chartered last month. .

"We believe that oil policy options for key producers are limited, for now," said the investment bank.

No decision will be made at Thursday's meeting, but it is expected to produce recommendations ahead of the OPEC + summit in Vienna in December.

Rapidan Energy Group said the alliance may need to cut production by another million bpd to stabilize the market.

But the problem will be to decide which member countries will bear the burden of any further reduction.

Saudi Arabia, which is indeed the leader of OPEC and extracts about one third of the world's oil, acquired more than its share last time.

Bouenain said he thought Riyadh would probably be more difficult this time, given the impact on the kingdom's revenues.

Raghu said the main factor weighing on oil prices was weak demand due to trade tensions between the United States and China.

"Without a favorable settlement of the conflict, OPEC's production cuts will not lead to a significant increase in oil prices," he said.