The oil ministers of Iran and Qatar have suggested that OPEC’s production cut agreement may have to be extended beyond the June deadline, despite an almost 100-percent compliance rate.
The comments come a day after the American Petroleum Institute reported the second-largest crude oil inventory increase in history, at 14.227 million barrels, which added fuel to worries that production cut efforts are not enough to rebalance the market.
Oil prices surged to their highest level since July 2015 on Monday raising concerns about inflation and helped push the US 10-year Treasury yield above the 2.5 per cent mark.
The yield on the US 10-year, which moves inversely to price, climbed above 2.5 per cent for the first time in two years to 2.5005 per cent.
“The bearishness in the bond market is even more acute than the bullishness on equities,” David Rosenberg at Gluskin Sheff, said.
He added: “A wall of money is exiting the bond market into the stock market — bond fund outflows in the past five weeks are at the highest in three-and-a-half years.”
Alongside energy prices, Peter Tchir at Brean Capital also said the weakness in Japan “is concerning to global bond investors”. He noted the Bank of Japan had pledge in September to keep the 10-year yield on the Japanese government bond at or below zero per cent. Instead, the JGB is now at nearly 0.8 per cent. That “might be an indication of Central Banks losing their ability or willingness to suppress interest rates,” he said.
Despite the run up in oil prices, the S&P 500 was down 0.1 per cent to 2,257.67, while the Dow Jones Industrial Average was flat at 19,760.14 — less than 300 points shy of breaching the 20,000 level. The Nasdaq Composite was down 0.5 per cent to 5,420.70.
Investors appear to be pausing for breathe following the sharp run up in stocks in recent weeks.
OPEC’s first production cuts in eight years will be a mixed bag for Asia, with the region’s few oil exporters celebrating and just about everyone else fretting.
The planned cuts are particularly worrying for Southeast Asian economies losing steam as China’s growth slows. India also has cause for concern. The country saw its gross domestic product rise 7.4% on the year in July-September, faster than the 7.1% in the previous quarter, but the government’s surprise demonetization of 500- and 1,000-rupee banknotes is expected to affect the economy well into next year.
On Wednesday, OPEC agreed for the first time since 2008 to impose an oil production ceiling totaling 32.5 million barrels per day in an effort to stabilize the global oil market. Non-OPEC countries that expressed a desire to participate in the agreement, including Russia, are expected to curtail oil production by a total of 600,000 barrels daily.
“History of such OPEC operations that have been conducted in the market three times on a large scale shows that oil prices grow by 50 percent. Therefore, with a high percent of certainty I can say that during the next year the price of $60 will be a dominating price,” Fedun said presenting LUKoil’s analysis of the oil industry’s future. Iran, Iraq to Drive Conventional Oil Production Increase Inside OPEC by 2030 Iran and Iraq will be the driving force inside the OPEC group of oil producers behind the anticipated rise in conventional oil production in the years to come, the vice president said. “The main sources of increase in conventional oil production among OPEC states by 2030 will be Iran and Iraq,” Fedun said. Iran returned to the global oil market in early 2016 after the negotiating an agreement on nuclear program curbs. Iraq’s oil production has been hampered by the rise of Islamists in 2014, but the oil-rich nation has since reclaimed large swaths of land with air support from an international coalition.
The Dow Jones industrial average ended up fractionally Wednesday after a big jump in oil prices on word of an OPEC oil deal.
Tech stocks took a hit as the major indexes ended mostly lower to cap a wild month.
The Dow lost considerable steam, ending up a mere 2 points and about 29 shy of its record closing high of 19,152.14. Earlier in the day, it and the S&P 500 topped their closing records, both set Friday, before scaling back. The S&P 500 wound up in negative territory, down 0.3%
Losing more altitude is the Nasdaq composite, which fell 1.1%.
The price of benchmark U.S. crude jumped as much as 9%m ending about a dime over $49 a barrel after OPEC countries moved toward finalizing a deal to reduce production.
Among energy companies, Devon Energy (DVN) jumped 14.6%, the biggest gain in the Standard & Poor’s 500 index.
With less than a week to go until the much anticipated OPEC meeting in Vienna on November 30, the oil exporting cartel still seems unable to determine the terms of production cut quotas, who will be exempt from cutting, and even who will participate. According to Reuters, in the latest twist to emerge, as OPEC tries to find the sweet spot for production that reduces the oversupply of crude, the organization will ask non-OPEC oil producers to also make big cuts in output, as it seeks to share the burden of declining output and prevent market share gains by non-OPEC nations.
The oil minister of Azerbaijan was quoted as saying the cartel may want non-OPEC producers to cut output by as much as 880,000 barrels per day (bpd). “It could be expected that OPEC members may ask non-OPEC countries to cut production volumes for the next six months starting from Jan. 1 2017 … by 880,000 barrels from the total daily production,” Azeri newspaper Respublika quoted the country’s oil minister, Natig Aliyev, as saying.
Reuters countered that according to an OPEC source the group had yet to decide on the final figures to be discussed on Nov. 28, when OPEC and non-OPEC experts meet in Vienna. As previously reported, OPEC is expected to discuss production cuts of 4.0-4.5% among its members at the Vienna meeting to comply with the roughly 1.2mmbpd reduction as set forth in the Algiers meeting which expects total OPEC output of 32.5-33.0mmbpd, but Iran and Iraq still have reservations about how much they want to contribute.
A cut of 80,000 bpd would represent less than 2% of current total non-OPEC output.
While the market has taken the latest round of “optimistic” jawboning by OPEC members in stride, sending crude higher by 4% ahead of next week’s OPEC meeting in Vienna where the terms of the OPEC production cut are expected to be finalized, the reality is that a favorable outcome may be problematic.
As Bloomberg’s Julian Lee explained overnight, “OPEC says it’s close to a deal to cut oil output for the first time since 2008, a move that may halt a 2 1/2-year price slump. The actions of individual member states tell a different story. The simple math supporting cuts looked solid at OPEC’s meetings in June and December. Prices then were way below most members’ fiscal break-even points. An output cut now of 1.5 million barrels a day, or 5 percent, would need to boost the oil price by only $2.50 a barrel for OPEC nations collectively to be better off. A $5 price increase would boost the value of what they pump by about $100 million a day.”
There are various nuances as to why a deal, one in which Saudi Arabia would bear the brunt of total production cuts, but as Lee notes, while OPEC Secretary-General Mohammed Barkindo has been touring member nations to shore up support for an agreement before the Nov. 30 meeting, culminating with a trip to Doha for talks last week, “the meeting didn’t resolve much. It certainly didn’t tackle any of the thorniest questions that OPEC must still overcome if coordinated measures are to happen.”
“The road from the OPEC agreement in Algiers to the next official OPEC meeting in Vienna is long and bumpy,” said Harry Tchilinguirian, head of commodities strategy at BNP Paribas SA in London.
The report stressed that oil prices were volatile and highly dependent on a variety of factors, including Brexit contributing to the general uncertainty and risk aversion or economic slowdown in Russia and China.
“Oil prices are assumed to average $43 a barrel in 2016 and $51 a barrel in 2017. Over the medium term, any further oil price recovery is expected to be limited, with futures markets suggesting prices will remain below $60 by 2021,” the report detailing the oil market forecast and its influence on the Middle East, North Africa, Afghanistan, and Pakistan said. In a recent effort to revitalize oil demand, Organization of the Petroleum Exporting Countries (OPEC) members reached an agreement on oil production freeze scheduled for finalization at OPEC summit on November 30, with non-OPEC states, including Russia, open to also capping the output.
An alliance between Toyota Motor and Suzuki Motor could be a boon to both sides, helping the former gain ground in emerging markets such as India and giving the latter the engineering needed to compete in an increasingly high-tech industry.
Can’t go it alone
The two automakers said Wednesday they were discussing collaboration on environmental, safety and information technology.
Although Toyota President Akio Toyoda told a new conference that the idea of an alliance came together in just two business days after Suzuki Chairman Osamu Suzuki got the ball rolling, there is more to the story. Suzuki’s next partner had been the subject of speculation since August 2015, when the Japanese maker of economy cars ended a capital and business relationship with Germany’s Volkswagen over management conflicts.
Though Chairman Suzuki had said publicly that his company would look to remain independent going forward, another senior executive had acknowledged that collaboration was “necessary” in some fields. Even in India, a successful market for Suzuki, environmental regulations are growing tougher, making investment in technology like hybrid drive systems essential. Rising incomes have also stoked demand for higher-end vehicles in such countries.
Finding a big automaker ally was seen as essential for Suzuki to ensure a presence in self-driving cars. While a Toyota or a Volkswagen has the financial strength to counter the challenge posed by Google and other tech giants in this field — Toyota’s annual research and development budget comes to around 1 trillion yen ($9.59 billion) — Suzuki, which spent just 130 billion yen on R&D in the year ended March 31, hardly stands a chance alone.
Amid negotiations about a reduction of oil production between members of the Organization of the Petroleum Exporting Countries (OPEC), Russia reported its highest post-Soviet record oil output.
Russia’s ministry of energy announced Saturday that in September it pumped a record 11.1 million barrels per day (bpd), the most since the demise of the Soviet Union and 4% above the previous output of 10.7 million bpd, according to preliminary estimates. Russia, as well as OPEC members, has struggled with the long recession as oil prices stay below $50 a barrel. In 2008, as a result of the financial crisis, oil prices plunged from $147 a barrel to less than $35.
On Wednesday, during the informal meeting in Algiers, for the first time in eight years, OPEC agreed to outline a deal that limits oil output. “We decided the range of production for OPEC of 32.5 to 33 million barrels a day should be divided between OPEC member countries,” Iranian minister Bijan Namdar Zanganeh said after the meeting. Working out an output freeze as well as the levels of production by each country is the goal of the next formal meeting in Vienna slated for November. However, some doubt whether OPEC will follow through on the commitments made at Algiers.
Russia’s oil minister, Alexander Novak, said after the Algiers agreement was announced, that “Russia will carefully consider those proposals which will be eventually drawn up”, but “our position is keeping the volume of production at the level that has been reached.” Nevertheless, Russia is flexible and is open for joint OPEC efforts to stabilize the oil market.