The countries of OPEC, once all-powerful in determining oil prices, besieged by infighting – have agreed to their first production freeze in eight years. After many aborted attempts to implement a supply cut, many were skeptical that this latest attempt would succeed. It certainly was a rocky road getting here; the cut was informally agreed in September, and very public outcries by Iran, Iraq, Libya and Nigeria cast doubt on OPEC’s ability to whip its members in line.
After the classic display of Game Theory over the past two yeas, OPEC will reduce its output by 1.2 mb/d by January, confirming OPEC’s intention to stick to the 32.5 mb/d level agreed in Algiers two months ago. More importantly, the agreement extends beyond OPEC, with non-OPEC nations also agreeing to implement cuts, including Russia.
The test of this will be actually implementing it, which is the harder portion of the equation. Nigeria and Libya are exempted from the cuts as they recover from infrastructure damage inflicted earlier this year, but Saudi Arabia, Iran and Iraq have all been given quotas. In particular, Iran has put aside its squabbling with Saudi Arabia to agree to capping its output at 3.8 mb/d, while Saudi Arabia will reduce its production by almost 500 kb/d, the UAE by 140 kb/d and Kuwait by 130 kb/d. Indonesia has requested a suspension of its OPEC membership (only two years after being re-admitted) as production cuts conflict with the country’s urgent need to raise its crude production. Saudi Arabia and its Gulf allies have generally stuck to their quotas in the past, but many other OPEC members haven’t. This will be a constant problem, which may undermine the whole integrity of the agreement.
But thus far the market seems to think OPEC will stick to the plan, sending Brent and WTI crude above the US$50/b mark, the highest since the OPEC Algiers plan was first announced.
Crucially, the plan also includes participation from non-OPEC members. Exactly what this entails is unknown beyond a vague statement that non-OPEC members are expected to reduce production by some 600 kb/d, with Russia decreasing by 300 kb/d (‘conditional to technical ability’, of course). These cuts are non-binding, and again, the harder part after herding the cats together to agree is actually implementing the plan. OPEC’s talks with non-OPEC producers continues on December 9, and meeting again next May to monitor progress. Analysts at Deutsche Bank said the deal isn’t enough to change the oil market outlook. The bank is skeptical that the full reduction will be realized, especially from non-OPEC countries. Analysts said oil traders would watch the agreement warily in the coming weeks.
Rising oil prices in the wake of OPEC’s production cut could hit demand from Asia’s emerging energy consumers, where weakening currencies have already led to higher prices. Since oil is priced in dollars, it makes crude more expensive in local currencies that have weakened against the greenback. China and India, the world’s second- and third-largest oil consumers after the U.S., have each seen declines in their currencies versus the U.S. dollar in recent weeks. However the beleaguered Asian oil industry could benefit from OPEC’s decision to cut production
But we are certainly in more positive territory than we were yesterday. OPEC has agreed to a supply freeze. Most would have dismissed this as a Yeti sighting, but it actually has happened. The nuts and bolts of enforcing it will now begin, and there are plenty of ways this house of cards could tumble down, but as it stands now, 2017 looks to be a better year for oil than 2016. Which can only be a good thing for you and me.
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In the last week, global crude oil price benchmarks have leapt up by some US$5/b. Brent is now in the US$66/b range, while WTI maintains its preferred US$10/b discount at US$56/b. On the surface, it would seem that the new OPEC+ supply deal – scheduled to last until April – is working. But the drivers pushing on the current rally are a bit more complicated.
Pledges by OPEC members are the main force behind the rise. After displaying some reticence over the timeline of cuts, Russia has now promised to ‘speed up cuts’ to its oil production in line with other key members of OPEC. Saudi Arabia, along with main allies the UAE and Kuwait, have been at the forefront of this – having made deeper-than-promised cuts in January with plans to go a bit further in February. After looking a bit shaky – a joint Saudi Arabia-Russia meeting was called off at the recent World Economic Forum in Davos in January – the bromance of world’s two oil superpowers looks to have resumed. And with it, confidence in the OPEC+ club’s abilities.
Russia and Saudi Arabia both making new pledges on supply cuts comes despite supply issues elsewhere in OPEC, which could have provided some cushion for smaller cuts. Iranian production remains constrained by new American sanctions; targeted waivers have provided some relief – and indeed Iranian crude exports have grown slightly over January and February – but the waivers expire in May and there is uncertainty over their extension. Meanwhile, the implosion in Venezuela continues, with the USA slapping new sanctions on the Venezuelan crude complex in hopes of spurring regime change. The situation in Libya – with the Sharara field swinging between closure and operation due to ongoing militant action – is dicey. And in Saudi Arabia, a damaged power repair cable has curbed output at the giant 1.2 mmb/d Safaniuyah field.
So the supply situation is supportive of a rally, from both planned and unplanned actions. But crude prices are also reacting to developments in the wider geopolitical world. The USA and China are still locked in an impasse over trade, with a March 1 deadline looming, after which doubled US tariffs on US$200 billion worth of Chinese imports would kick in. Continued escalation in the trade war could lead to a global recession, or at least a severe slowdown. But the market is taking relief that an agreement could be made. First, US President Donald Trump alluded to the possibility of pushing the deadline by 2 months to allow for more talks. And now, chatter suggests that despite reservations, American and Chinese negotiators are now ‘approaching a consensus’. The threat of the R-word – recession – could be avoided and this is pumping some confidence back in the market. But there are more risks on the horizon. The UK is set to exit the European Union at the end of March, and there is still no deal in sight. A measured Brexit would be messy, but a no-deal Brexit would be chaotic – and that chaos would have a knock-on effect on global economies and markets.
But for now, the market assumes that there must be progress in US-China trade talks and the UK must fall in line with an orderly Brexit. If that holds – and if OPEC’s supply commitments stand – the rally in crude prices will continue. And it must. Because the alternative is frightening for all.
Factors driving the current crude rally:
Already, lubricant players have established their footholds here in Bangladesh, with international brands.
However, the situation is being tough as too many brands entered in this market. So, it is clear, the lubricants brands are struggling to sustain their market shares.
For this reason, we recommend an impression of “Lubricants shelf” to evaluate your brand visibility, which can a key indicator of the market shares of the existing brands.
Every retailer shop has different display shelves and the sellers place different product cans for the end-users. By nature, the sellers have the sole control of those shelves for the preferred product cans.The idea of “Lubricants shelf” may give the marketer an impression, how to penetrate in this competitive market.
The well-known lubricants brands automatically seized the product shelves because of the user demand. But for the struggling brands, this idea can be a key identifier of the business strategy to take over other brands.
The key objective of this impression of “Lubricants shelf” is to create an overview of your brand positioning in this competitive market.
A discussion on Lubricants Shelves; from the evaluation perspective, a discussion ground has been created to solely represent this trade, as well as its other stakeholders.Why “Lubricants shelf” is key to monitor engine oil market?
The lubricants shelves of the overall market have already placed more than 100 brands altogether and the number of brands is increasing day by day.
And the situation is being worsened while so many by name products are taking the different shelves of different clusters. This market has become more overstated in terms of brand names and local products.
You may argue with us; lubricants shelves have no more space to place your new brands. You might get surprised by hearing such a statement. For your information, it’s not a surprising one.
Regularly, lubricants retailers have to welcome the representatives of newly entered brands.
And, business Insiders has depicted this lubricants market as a silent trade with a lot of floating traders.
On an assumption, the annual domestic demand for lubricants oils is around 100 million litres, whereas base oil demand around 140 million litres.
However, the lack of market monitoring and the least reporting makes the lubricants trade unnoticeable to the public.
Headline crude prices for the week beginning 11 February 2019 – Brent: US$61/b; WTI: US$52/b
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