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Expect structural weakness in energy markets over next two weeks: Peter McGuire, XM Australia

You may see a weakening of Brent and WTI today, says MCGuire

ET Now|
Dec 06, 2018, 03.11 PM IST
Peter McGuire, XM Australia-1200
We should see a 1-1.5 million barrel cut or more by oil producers. If that materialises, it could support pricing in the short to medium term, Peter McGuire, CEO, XM Australia, tells ET Now.

Edited excerpts:

The matter of whether or not to cut output has been more or less decided. Now the debate has moved to how much. Given the current supply demand situation, what quantum would help catapult the oil markets according to you?

Well, a couple of things. We would see a 1-1.5 million barrel cut or more. Naturally, it is going to give a lot of credibility and it should support price from its current angle. You may see an increase on that number, it is a little bit undecided but I feel that has been the general consensus over the last 24 to 36 hours here on the street in Vienna. If that materialises, it could support pricing in the short to medium term.

But Saudi wants 1.3 million barrels being cut in total, Russia is willing to do less. Who will blink first?

Probably there will be some form of compromise between that Saudi and Russian numbers. The top three producers in the world are Saudi, Russia and the United States and there may be a little pushback from Russia. Their economy certainly needs a higher crude price, very much like a lot of the other OPEC members.

Let us see what happens tomorrow morning and I am sure that there would be extensive talks underway now between all parties.

Russia has been struggling with its own fiscal problems. Iran does not want to participate in a cartel. Libya and Nigeria are exempted and Iraq has just started to increase supply, Saudi has clearly said that they would not cut alone. How do you see OPEC and non OPEC members support for output cut build up?

Well that is going to be the great issue and when you are looking at the likes of even Nigeria and Venezuela being to that particular party, we understand certainly from the Iran situation and take on board also Qatar from 1st of January they will no longer be involved.

It seems to be difficult to gain consensus across all members and there is going to be a lot of jockeying over the next 12 hours or so to get some form of compromise worked through the mechanics of OPEC that all parties are interested and satisfied.

Normally it takes a fair bit of time. I have been to Vienna quite a few times for these major OPEC meetings and there is always grave uncertainty leading up to last 20 to 30 minutes. and then the press conference is presented to the analysts.

All I will say is that you have got volatility and uncertainty and it is going to not stop over the next 12 to 15-18 hours to get some sort of satisfaction for all parties.

The other big issue has been Qatar’s withdrawal from OPEC and a recent and very symbolic move. Does this also indicate disgruntlement on part of smaller players against Saudi, Russia dominance? Or is it Qatar acting out due to the blockade?

There is also a strategic push from Qatar. That maybe an underlying respect to the blockade. They have also got to be taken on board. Iran is producing 600,000 barrels a day and still they will be able to move on that as far as moving that production to an adequate buyer, but the other side that needs to be considered is the LNG push.

Their strategy has been always to be a major player in the global market in LNG and they are very much focussed and that is the key point as far as revenue is concerned. That is where they need to look forward from their revenue side over the coming years and that has been demonstrated by them as saying that they no longer want to be involved with OPEC. Other markets and smaller producers may follow suit. Again, that is going to be a work in progress.

Let us talk about scenarios; in the likelihood of a no deal, how do you see crude prices? With the recent rebound in Brent from $59 all the way to $63, do you think the market has already priced in an output cut?

I do not necessarily thing so. It could end up as a dead cat bounce. The market was massively sold off and if we look at the US equities market, on Wednesday, Thursday and Friday it shut the lights out. Then Monday was very similar. The G-20 talk at Buenos Aires between US President Donanld Trump and China’s Xi Jinping, created a sense that the market was beat up. On Tuesday in New York, the Dow smashed the downside, down 800 points. I feel it would be interesting to see what happens in New York and in Europe trading today.

There will be further softening across the energy sector and you may see a weakening of Brent and WTI. It will probably bounce after the announcement tomorrow but you will see structural weakness in the energy markets over the coming week or two. That is a great concern to all producers as far as revenue is concerned.


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