Is Opec+ carrying out a reset, a rebound or a revolution? By the middle of next year, we will have a clearer idea of which of the three Rs it favours – but that is a long time to wait. Even the ministers and strategists who meet in their virtual Vienna may not be sure, but deciphering the question is crucial to the oil exporters’ diverging prospects.
This month, the extended Opec+ group agreed to start easing the next 1.65 million barrels per day tranche of voluntary cuts. These were made by an eight-member subset of the leading producers: Saudi Arabia, Iraq, the UAE, Kuwait, Russia, Kazakhstan, Algeria and Oman. They had already eliminated the first of 2.2 million barrels of these voluntary cuts the month before.
Now, from October, allowable production will increase by 137,000 bpd. If this were repeated each month, then after a year, the second tranche will be eliminated. That would leave only the third set of cuts, totalling 2 million bpd, chronologically the first made, which date from October 2022. Unlike the voluntary cuts, these were binding on all Opec+ members, except three exempt for political reasons – Iran, Libya and Venezuela.
In case this simplification might make the sums too easy for analysts, it is complicated by the revision of “compensation cuts”, through which some countries are meant to fill in for overshooting. Most of this falls on Kazakhstan and Iraq, and to a lesser extent, the UAE and Russia. The latest update largely defers this compensation to next year.
If taken literally, the new compensation schedule would actually reduce production from Opec+ next year, even accounting for the latest permitted increase. But no one really expects Kazakhstan to follow through.
These production increases have been a success, from the point of view of Opec+. The group announced the first step of its more aggressive easing policy just hours after US President Donald Trump’s April 2 tariff headline had brought down oil prices sharply. Since then, prices are actually up slightly. Production from the group of eight has increased almost 4.5 per cent from April to August, translating to an overall revenue gain.
Stronger than expected demand, and, probably, large gains in Chinese inventories, have helped soak up any surplus. That could change in the fourth quarter, as Middle Eastern oil consumption for power drops, permitting higher exports, while demand generally is expected to soften. The International Energy Agency sees a fourth-quarter glut as high as 3.1 million bpd, although that is not apparent in the data yet.
The next moves by Opec+ will show what approach it has in mind: reset, rebound or revolution. In the case of reset, it will continue to increase allowable production month by month, and monitor the market. By next June, it would have worked off all the voluntary cuts. The real oil flowing to market will be much less than the headline 1.65 million bpd, perhaps half that, as several members of the group of eight hit the limits of their capacity.
Saudi Arabia could then seek a general realignment of production baselines. These date from October 2018, with a few adjustments, and have become ever more outdated. The group has already planned for an independent consultancy to assess real production capacities, to inform new baselines in 2027. Nevertheless, such a reset will be very controversial.
The UAE, Iraq and Kazakhstan would expect substantial increases because of their investment in new capacity – but why should Kazakhstan, which has heavily overproduced, be rewarded? If the heralded oversupply arrives and Opec+ then decides on an overall cut in output from its new, higher level, others would have to give some ground. Riyadh will not want to bear the burden again, so to have an impact, reductions would have to come from other large producers, notably Russia.
The required consensus could be achieved in three ways. A period of low oil prices, say below $60 or even $50 a barrel – would convince waverers that a new framework for cuts was required. To sustain oil prices to fund its continuing war, Moscow might have to concede on production levels. Or, the end of the voluntary cuts would reveal who can live up to their production targets, and who cannot. Alternatively, stiffer sanctions on Russian oil or intensified Ukrainian attacks might finally cut its exports substantially.
Outside the group of eight and the exempted three, the other Opec+ adherents are mostly small producers without spare capacity. The main exception, Nigeria, has enjoyed a good year and might have a case for a stronger baseline. Libya, though exempt, could also prove tricky if its recent period of relative stability in the oil sector persists, and if it is able to mobilise its planned production gains. Can it remain outside the baseline system indefinitely?
The rebound case would result in Saudi Arabia and its main allies recovering market share to around the 2022 level, before the two big wedges of voluntary cuts were made. That might come at the cost of significantly lower prices next year, depending on the trajectory of the global economy. Production would be set ad hoc as it becomes clear who really has spare capacity.
The revolution scenario is the most intriguing. The leading lights in Opec+ would make a sustained push for higher output levels and gaining – not just regaining – market share. They would move to eliminate not only the voluntary cuts, but the remaining 2 million bpd of group-wide reductions. Of course, that would mean prices dropping substantially, probably to below $50 a barrel.
Such a strategic shift would aim to moderate inflation and hence prop up economic growth in the short term. In the longer term, it should sustain oil demand, and squeeze out competing supply. US shale production could be deterred during the next year. But it would take some years to diminish the longer lead-time output from countries such as Canada, Brazil and Guyana. A bigger impact might be within the Opec+ group itself, by starving budgets for more costly projects.
Opec+, and within it Opec, have generally moved flexibly, both anticipating and reacting to market developments. The group still faces all the difficulties of co-ordinating a disparate group of countries. Whichever of the three Rs it opts for, all the key members need to see that the sums add up.
UAE currency: the story behind the money in your pockets
Terror attacks in Paris, November 13, 2015
- At 9.16pm, three suicide attackers killed one person outside the Atade de France during a foootball match between France and Germany
- At 9.25pm, three attackers opened fire on restaurants and cafes over 20 minutes, killing 39 people
- Shortly after 9.40pm, three other attackers launched a three-hour raid on the Bataclan, in which 1,500 people had gathered to watch a rock concert. In total, 90 people were killed
- Salah Abdeslam, the only survivor of the terrorists, did not directly participate in the attacks, thought to be due to a technical glitch in his suicide vest
- He fled to Belgium and was involved in attacks on Brussels in March 2016. He is serving a life sentence in France
UAE currency: the story behind the money in your pockets
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Mohammed bin Zayed Majlis
Our family matters legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
if you go
The flights
Etihad, Emirates and Singapore Airlines fly direct from the UAE to Singapore from Dh2,265 return including taxes. The flight takes about 7 hours.
The hotel
Rooms at the M Social Singapore cost from SG $179 (Dh488) per night including taxes.
The tour
Makan Makan Walking group tours costs from SG $90 (Dh245) per person for about three hours. Tailor-made tours can be arranged. For details go to www.woknstroll.com.sg
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Our legal consultants
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
ENGLAND SQUAD
Eoin Morgan (captain), Moeen Ali, Jonny Bairstow, Sam Billings, Jos Buttler, Tom Curran, Alex Hales, Liam Plunkett, Adil Rashid, Joe Root, Jason Roy, Ben Stokes, David Willey, Chris Woakes, Mark Wood
MATCH INFO
Uefa Champions League semi-finals, first leg
Liverpool v Roma
When: April 24, 10.45pm kick-off (UAE)
Where: Anfield, Liverpool
Live: BeIN Sports HD
Second leg: May 2, Stadio Olimpico, Rome
One-off T20 International: UAE v Australia
When: Monday, October 22, 2pm start
Where: Abu Dhabi Cricket, Oval 1
Tickets: Admission is free
Australia squad: Aaron Finch (captain), Mitch Marsh, Alex Carey, Ashton Agar, Nathan Coulter-Nile, Chris Lynn, Nathan Lyon, Glenn Maxwell, Ben McDermott, Darcy Short, Billy Stanlake, Mitchell Starc, Andrew Tye, Adam Zampa, Peter Siddle
What is blockchain?
Blockchain is a form of distributed ledger technology, a digital system in which data is recorded across multiple places at the same time. Unlike traditional databases, DLTs have no central administrator or centralised data storage. They are transparent because the data is visible and, because they are automatically replicated and impossible to be tampered with, they are secure.
The main difference between blockchain and other forms of DLT is the way data is stored as ‘blocks’ – new transactions are added to the existing ‘chain’ of past transactions, hence the name ‘blockchain’. It is impossible to delete or modify information on the chain due to the replication of blocks across various locations.
Blockchain is mostly associated with cryptocurrency Bitcoin. Due to the inability to tamper with transactions, advocates say this makes the currency more secure and safer than traditional systems. It is maintained by a network of people referred to as ‘miners’, who receive rewards for solving complex mathematical equations that enable transactions to go through.
However, one of the major problems that has come to light has been the presence of illicit material buried in the Bitcoin blockchain, linking it to the dark web.
Other blockchain platforms can offer things like smart contracts, which are automatically implemented when specific conditions from all interested parties are reached, cutting the time involved and the risk of mistakes. Another use could be storing medical records, as patients can be confident their information cannot be changed. The technology can also be used in supply chains, voting and has the potential to used for storing property records.
Tips for used car buyers
- Choose cars with GCC specifications
- Get a service history for cars less than five years old
- Don’t go cheap on the inspection
- Check for oil leaks
- Do a Google search on the standard problems for your car model
- Do your due diligence. Get a transfer of ownership done at an official RTA centre
- Check the vehicle’s condition. You don’t want to buy a car that’s a good deal but ends up costing you Dh10,000 in repairs every month
- Validate warranty and service contracts with the relevant agency and and make sure they are valid when ownership is transferred
- If you are planning to sell the car soon, buy one with a good resale value. The two most popular cars in the UAE are black or white in colour and other colours are harder to sell
Tarek Kabrit, chief executive of Seez, and Imad Hammad, chief executive and co-founder of CarSwitch.com
Groom and Two Brides
Director: Elie Semaan
Starring: Abdullah Boushehri, Laila Abdallah, Lulwa Almulla
Rating: 3/5
Day 1, Abu Dhabi Test: At a glance
Moment of the day Dimuth Karunaratne had batted with plenty of pluck, and no little skill, in getting to within seven runs of a first-day century. Then, while he ran what he thought was a comfortable single to mid-on, his batting partner Dinesh Chandimal opted to stay at home. The opener was run out by the length of the pitch.
Stat of the day - 1 One six was hit on Day 1. The boundary was only breached 18 times in total over the course of the 90 overs. When it did arrive, the lone six was a thing of beauty, as Niroshan Dickwella effortlessly clipped Mohammed Amir over the square-leg boundary.
The verdict Three wickets down at lunch, on a featherbed wicket having won the toss, and Sri Lanka’s fragile confidence must have been waning. Then Karunaratne and Chandimal's alliance of precisely 100 gave them a foothold in the match. Dickwella’s free-spirited strokeplay meant the Sri Lankans were handily placed at 227 for four at the close.
Padmaavat
Director: Sanjay Leela Bhansali
Starring: Ranveer Singh, Deepika Padukone, Shahid Kapoor, Jim Sarbh
3.5/5
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UAE currency: the story behind the money in your pockets
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if you go
The flights
Etihad and Emirates fly direct to Kolkata from Dh1,504 and Dh1,450 return including taxes, respectively. The flight takes four hours 30 minutes outbound and 5 hours 30 minute returning.
The trains
Numerous trains link Kolkata and Murshidabad but the daily early morning Hazarduari Express (3’ 52”) is the fastest and most convenient; this service also stops in Plassey. The return train departs Murshidabad late afternoon. Though just about feasible as a day trip, staying overnight is recommended.
The hotels
Mursidabad’s hotels are less than modest but Berhampore, 11km south, offers more accommodation and facilities (and the Hazarduari Express also pauses here). Try Hotel The Fame, with an array of rooms from doubles at Rs1,596/Dh90 to a ‘grand presidential suite’ at Rs7,854/Dh443.
How to wear a kandura
Dos
- Wear the right fabric for the right season and occasion
- Always ask for the dress code if you don’t know
- Wear a white kandura, white ghutra / shemagh (headwear) and black shoes for work
- Wear 100 per cent cotton under the kandura as most fabrics are polyester
Don’ts
- Wear hamdania for work, always wear a ghutra and agal
- Buy a kandura only based on how it feels; ask questions about the fabric and understand what you are buying
