Oil prices
tumbled in Asia Friday as doubts emerged over the long-term success of a
surprise OPEC agreement to cut output and stabilise the oversupplied market.
The Organization of the Petroleum Exporting Countries on Wednesday stunned
traders by announcing plans to trim collective production by around 750,000
barrels per day.
Initial
euphoria over what would be the first output cut in eight years sent prices
soaring six percent, but the rally fizzled as traders digested the nuts and bolts
of the deal. A technical committee has been formed to flesh out the details
ahead of the cartel’s formal meeting on November 30, including the allocation
of the cuts for each member.
“There are concerns about the execution of OPEC’s
new production targets and many actually feel that the headlines are more
bullish than the reality of the situation,” IG Markets analyst Chris Weston
said in a note. “Even when the new agreement is finalised, the actual
reductions won’t materialise until 2017 and the prospect of various nations
exceeding targets is real.” At around 0700 GMT, US benchmark West Texas
Intermediate was down 55 cents at $47.28 and Brent eased 63 cents to $48.61.
Other analysts also doubted whether cooperation between Saudi Arabia and bitter
rival Iran, which is crucial to the deal, would hold. “Relations between Saudi
Arabia and Iran remain poor and, while the OPEC deal has huge significance
politically, we do not see room for a broader rapprochement between the two,”
BMI Research said in a commentary.
“Historically, quotas have been a highly
contentious issue and low prices and mounting fiscal pressures have only served
to raise the stakes,” it added.
In a major concession, OPEC kingpin Saudi
Arabia allowed Iran to be exempted from the cuts as Tehran recovers from years
of Western economic sanctions lifted only in January. The Middle East’s
foremost Shiite and Sunni Muslim powers are at odds over an array of issues
including the wars in Syria and Yemen.
“Tensions are liable to mount, as
negotiations progress,” BMI said. “Given how unpalatable the deal will be
domestically, any concessions by Saudi Arabia or Iran will hinge on the
promises of strong fiscal returns.”
Analysts are sceptical as to whether the
planned cuts will have much real impact on the oversupplied market.
“While OPEC
is showing signs of solidarity, the group make up just less than 40 percent of
global oil output,” Weston said. “Russia are producing over 11 million barrels
a day and we have seen US shale gas producers increase their output.”
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