Dec 10, 2018

Oil prices volatile after OPEC-Russia deal

Ben Geman, author of Generate

Saudi Energy Minister Khalid al-Falih (L) and Russian Energy Minister Alexander Novak at a meeting of OPEC and non-OPEC members. Photo: Amer Hilabi/AFP/Getty Images

The big energy market news over the weekend was OPEC and Russia agreeing in Vienna Friday to curb output by 1.2 million barrels per day compared to October levels.

Why it matters: The decision to curb output starting in January quickly boosted prices a bit, though they remain far below where they were 2 months ago.

  • The global benchmark Brent crude initially shot up by $3 per barrel Friday before giving back about half that ground.
  • Prices are heading back down again on Monday morning to roughly $61, and are still far below the $86 reached in early October.

What they're saying: A number of analysts see the cut tightening the market enough to send prices back up next year by roughly $10 per barrel from where they were before the deal.

  • "We think the OPEC+ deal sets a platform for prices to recover towards USD70/b. While we can’t rule out downside from here we think it now looks far less likely, and we would expect continued OPEC intervention if it were the case," HSBC analysts said in a note Monday.

But, but, but: There are all kinds of caveats here. Bloomberg writes this morning, "Oil’s gains risk being quelled by uncertainty over how the OPEC+ coalition will implement its deal to cut output, according to Goldman Sachs Group Inc. and Morgan Stanley."

A couple of experts are warning that OPEC and Russia's new deal is simply triage, and that the cartel is facing much larger and existential challenges.

1. Nick Butler of King's College London writes in the Financial Times that Qatar's recent decision to abandon OPEC is a sign of fundamental problems and loss of influence.

  • "Wisdom begins with a cold-eyed acceptance of reality. Opec is not the power it once was," writes Butler, a former BP executive.
  • "For Qatar, and several other countries, the implication is that they will have to look after themselves in a world where the old methods of controlling prices by restricting production no longer work," he adds.

2. Council on Foreign Relations' Amy Myers Jaffe has a post that looks at OPEC's position in light of the rise of U.S. shale and the emergence of alternative technologies that have put peak oil demand on the eventual horizon.

  • Her piece covers a lot of ground, and I won't try to capture it all here. Overall, she argues that "OPEC’s mission is starting to look increasingly anachronistic."

Go deeper: Russia, OPEC agree to cut oil production

Go deeper

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Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Axios Visuals

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By the numbers: Almost 6.9 million people have tested positive for COVID-19 worldwide and more than 3 million have recovered from the virus. The U.S. has reported the most cases in the world with over 1.9 million.

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Protesters gather north of Lafayette Square near the White House during a demonstration against racism and police brutality, in Washington, D.C. on Saturday evening. Photo: Jose Luis Magana/AFP via Getty Images

Tens of thousands of demonstrators have been rallying in cities across the U.S. and around the world to protest the killing of George Floyd. Huge crowds assembled in Washington, D.C., Philadelphia and Chicago for full-day events on Saturday.

Why it matters: Twelve days of nationwide protest in the U.S. has built pressure for states to make changes on what kind of force law enforcement can use on civilians and prompted officials to review police conduct. A memorial service was held for Floyd in Raeford, North Carolina, near where he was born. Gov. Roy Cooper ordered all flags to fly at half-staff to honor him until sunset.

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Coronavirus dashboard

Illustration: Sarah Grillo/Axios

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