The wind changed again in the oil market as Organization of Petroleum Exporting Countries (Opec) signalled it will consider a return to cutting output next year, potentially making the second production U-turn this year.
With the US midterm elections over and crude futures wilting in the face of another historic shale oil surge, the cartel will discuss a change of course this weekend.
Ministers from the Opec and its allies will meet in Abu Dhabi on Sunday and discuss scenarios including the possibility of cutting production again next year, according to delegates. Some members are concerned that inventories are rising, they said, asking not to be named because the discussions are private.
Earlier in the summer, prices began to surge as the risk of production shortfalls from sanctions on Iran and Venezuela’s economic collapse rattled the market. Losses from those two Opec members threatened the biggest supply disruption since the start of the decade and Brent crude eventually peaked above $86 a barrel last month.
Big things have happened on the other side of the supply equation. OPEC has been in “produce as much as you can mode” to reassure consumers, according to Saudi Energy Minister Khalid Al-Falih. The kingdom has lifted output, while Libya is pumping the most in five years. Unexpected waivers for buyers of Iranian crude have blunted the impact of US sanctions.
Then there’s the small matter of American production growing at the fastest rate in a century, just as fuel demand is at risk from the slowdown in emerging economies and the US-China trade war.
Crude prices already reflect a much weaker outlook for 2019. Brent for January delivery has retreated about 15 percent from a four-year high reached in early October. Prices jumped 1.3 percent to $73.02 at 1:38 pm in London on Wednesday.
“They will absolutely want to at some point next year try to arrange a reduction in production,” said Ed Morse, head of commodities at Citigroup Inc. “Everything points to a fairly weak balance: the world economy is decelerating, the China trade tensions are having a visible impact on demand.”