Smoothly exiting from the current output pact, and perhaps replacing it with another agreement, has become an important policy question for Opec and its allies.
Under the current “declaration of cooperation”, issued in December 2016, Opec with Russia and some non-Opec countries have pledged to limit their output. Production limits were originally intended to apply for six months between January and June 2017 but have since been extended for a further nine months until the end of March 2018.
The original declaration was vague about its objectives but senior officials have since indicated the primary goal is to reduce oil inventories in OECD industrialised countries down to the five-year average.
Opec and its allies are now approximately half-way towards that goal, with stocks about 160 million to 170 million barrels above the five-year average, compared with 280 million at the start of 2017.
Opec officials have stressed their resolve to finish what they have started and reduce stocks even further next year.
“We are determined to do whatever it takes to bring global inventories down to the normal level which we say is the five-year average,” the Saudi energy minister Khalid Al Falih said in Riyadh on Tuesday.
“The intent is to keep our hands on the wheel between now and until we get to a balanced market and beyond,” he said.
Since inventories are unlikely to be reduced to the target by the end of March, Opec officials are discussing an extension of the production cuts for up to another nine months.
But the more complicated and important task is deciding when and how to exit from the current agreement and whether to try to replace it with another production accord.
“When we get closer to that [five-year average] we will decide how we smoothly exit the current agreement, maybe go to a different arrangement to keep supply and demand closely balanced so we don’t have a return to higher inventories,” Mr Al Falih said on the sidelines of the Future Investment Initiatives conference in Riyadh.
Knowing when to declare that an objective has been achieved and making a course correction is often a major challenge for policymakers.
If a policy has been successful, there is a tendency to continue pursuing it, even when the environment has changed and demands a different response.
Opec and its allies must decide when to switch the focus from limiting output and cutting stocks to growing production again to meet rising demand.
If they wait too long, stocks will fall too far, prices will rise strongly, shale production will ramp up and the oil market’s adjustment will overshoot.
There is an entire branch of engineering and information technology on “control theory” or how to adjust system inputs to achieve the desired level of output.
The challenge is to adjust inputs smoothly and in a timely manner to keep outputs close to a reference value rather than swinging around wildly.
In Opec’s case, the challenge is to adjust production to achieve some desired level of inventories, prices and market share.
In practice, the organisation has found that a challenge; policy shifts have tended to be reactive rather than proactive.
_______________
Read more:
Aramco chief says lack of investment may hit oil supplies
Saudi oil minister upbeat as he visits Baghdad
Opec chief sees oil demand rising at 'healthy pace'
_______________
Opec’s declared objective of reducing excess global oil inventories to their five-year average is only an intermediate target.
The ultimate objective is to achieve some desired combination of price and market share that sustainably maximises income for its member states (leaving to one side the question of time horizon).
In practice, the organisation is led by Saudi Arabia, and the kingdom’s priority tends to alternate between supporting prices and defending market share.
Between the middle of 2014 and the middle of 2016, the kingdom focused on defending market share. Since the end of 2016, its priority has switched to cutting stocks and pushing up prices, and it has been willing to accept some reduction in market share to achieve it.
Saudi officials have so far indicated the focus will remain on inventory reduction and price support well into 2018, even if the kingdom has to concede market share to rival producers.
But as stocks continue to fall, the country will have to make some tricky decisions about when to adjust its production policy and what combination of prices and market share to target.
Global consumption rose by almost 6 million barrels per day (bpd) over the past five years, from less than 91 million bpd in 2012, to more than 96 million bpd in 2016.
Consumption is forecast to rise by another 1.5 million bpd in both 2017 and 2018, which means demand will be almost 10 million bpd higher in 2018 than in 2012.
If a balanced oil market includes some desired ratio of stocks to consumption, then a balanced market in 2018 will need to carry a significantly higher level of stocks than 2012-2016 average.
Cutting inventories back to the five-year average would leave the market feeling exceptionally tight. If Opec tries to force stocks down to that level, the result will be a big rise in spot prices and a sharp move into backwardation.
This is exactly what happened following previous Opec-led efforts at market rebalancing in 1999/2000 and 2010/2011, and it could happen again in 2018/19.
In the aftermath of an oil price slump, Opec and its advisers normally announce they will cut excess stocks, raise prices to a “normal” level and then pledge to keep the market stable.
Following the wrenching 1997/98 price slump, Opec announced it would target a price band of US$22 to $28 per barrel, which became a formal target between 2000 and 2004 before being shelved.
In 2008, Saudi Arabia’s then King Abdullah called $75 to $80 per barrel a “fair price”, and it became a de facto price target for a time, before it, too, was overtaken by events and abandoned.
Oil prices quickly overshot both targets, and Opec found it hard to prevent them climbing further.
As the oil market continues to tighten in 2018, the same pattern could repeat itself, with both spot prices and the backwardation increasing.
Opec and its allies must decide whether to take some of the increase in demand for their crude in the form of higher prices, higher output, or both.
Since most countries are already pumping near full capacity, the decision will principally rest with Saud Arabia and Russia.
Higher prices would risk a renewed boom in shale production from the United States, so Saudi Arabia is likely to be cautious about the market tightening too much.
But the kingdom needs higher oil revenues to help to fund an ambitious social and economic transformation programme.
And higher prices might help achieve a better valuation if and when the kingdom tries to sell shares in its national oil company Aramco.
Averting a renewed shale boom suggests the kingdom should focus on adding production to keep prices below $60.
But revenue maximisation and the looming sale of oil company shares argues for letting prices rise above $60 in 2018.
Policymakers are likely to adopt a mixed strategy and opt for some combination of both increased output and higher prices.
John Kemp is a Reuters analyst and the views expressed are his own
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
House-hunting
Top 10 locations for inquiries from US house hunters, according to Rightmove
- Edinburgh, Scotland
- Westminster, London
- Camden, London
- Glasgow, Scotland
- Islington, London
- Kensington and Chelsea, London
- Highlands, Scotland
- Argyll and Bute, Scotland
- Fife, Scotland
- Tower Hamlets, London
If you go...
Fly from Dubai or Abu Dhabi to Chiang Mai in Thailand, via Bangkok, before taking a five-hour bus ride across the Laos border to Huay Xai. The land border crossing at Huay Xai is a well-trodden route, meaning entry is swift, though travellers should be aware of visa requirements for both countries.
Flights from Dubai start at Dh4,000 return with Emirates, while Etihad flights from Abu Dhabi start at Dh2,000. Local buses can be booked in Chiang Mai from around Dh50
Mohammed bin Zayed Majlis
ICC Awards for 2021
MEN
Cricketer of the Year – Shaheen Afridi (Pakistan)
T20 Cricketer of the Year – Mohammad Rizwan (Pakistan)
ODI Cricketer of the Year – Babar Azam (Pakistan)
Test Cricketer of the Year – Joe Root (England)
WOMEN
Cricketer of the Year – Smriti Mandhana (India)
ODI Cricketer of the Year – Lizelle Lee (South Africa)
T20 Cricketer of the Year – Tammy Beaumont (England)
THREE
%3Cp%3EDirector%3A%20Nayla%20Al%20Khaja%3C%2Fp%3E%0A%3Cp%3EStarring%3A%20Jefferson%20Hall%2C%20Faten%20Ahmed%2C%20Noura%20Alabed%2C%20Saud%20Alzarooni%3C%2Fp%3E%0A%3Cp%3ERating%3A%203.5%2F5%3C%2Fp%3E%0A
Neil Thomson – THE BIO
Family: I am happily married to my wife Liz and we have two children together.
Favourite music: Rock music. I started at a young age due to my father’s influence. He played in an Indian rock band The Flintstones who were once asked by Apple Records to fly over to England to perform there.
Favourite book: I constantly find myself reading The Bible.
Favourite film: The Greatest Showman.
Favourite holiday destination: I love visiting Melbourne as I have family there and it’s a wonderful place. New York at Christmas is also magical.
Favourite food: I went to boarding school so I like any cuisine really.
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About Krews
Founder: Ahmed Al Qubaisi
Based: Abu Dhabi
Founded: January 2019
Number of employees: 10
Sector: Technology/Social media
Funding to date: Estimated $300,000 from Hub71 in-kind support
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Western Region Asia Cup T20 Qualifier
Sun Feb 23 – Thu Feb 27, Al Amerat, Oman
The two finalists advance to the Asia qualifier in Malaysia in August
Group A
Bahrain, Maldives, Oman, Qatar
Group B
UAE, Iran, Kuwait, Saudi Arabia
UAE group fixtures
Sunday Feb 23, 9.30am, v Iran
Monday Feb 25, 1pm, v Kuwait
Tuesday Feb 26, 9.30am, v Saudi
UAE squad
Ahmed Raza, Rohan Mustafa, Alishan Sharafu, Ansh Tandon, Vriitya Aravind, Junaid Siddique, Waheed Ahmed, Karthik Meiyappan, Basil Hameed, Mohammed Usman, Mohammed Ayaz, Zahoor Khan, Chirag Suri, Sultan Ahmed
ELIO
Starring: Yonas Kibreab, Zoe Saldana, Brad Garrett
Directors: Madeline Sharafian, Domee Shi, Adrian Molina
Rating: 4/5
MATCH INFO
Barcelona 2
Suarez (10'), Messi (52')
Real Madrid 2
Ronaldo (14'), Bale (72')
Countries offering golden visas
UK
Innovator Founder Visa is aimed at those who can demonstrate relevant experience in business and sufficient investment funds to set up and scale up a new business in the UK. It offers permanent residence after three years.
Germany
Investing or establishing a business in Germany offers you a residence permit, which eventually leads to citizenship. The investment must meet an economic need and you have to have lived in Germany for five years to become a citizen.
Italy
The scheme is designed for foreign investors committed to making a significant contribution to the economy. Requires a minimum investment of €250,000 which can rise to €2 million.
Switzerland
Residence Programme offers residence to applicants and their families through economic contributions. The applicant must agree to pay an annual lump sum in tax.
Canada
Start-Up Visa Programme allows foreign entrepreneurs the opportunity to create a business in Canada and apply for permanent residence.
Like a Fading Shadow
Antonio Muñoz Molina
Translated from the Spanish by Camilo A. Ramirez
Tuskar Rock Press (pp. 310)
Sole survivors
- Cecelia Crocker was on board Northwest Airlines Flight 255 in 1987 when it crashed in Detroit, killing 154 people, including her parents and brother. The plane had hit a light pole on take off
- George Lamson Jr, from Minnesota, was on a Galaxy Airlines flight that crashed in Reno in 1985, killing 68 people. His entire seat was launched out of the plane
- Bahia Bakari, then 12, survived when a Yemenia Airways flight crashed near the Comoros in 2009, killing 152. She was found clinging to wreckage after floating in the ocean for 13 hours.
- Jim Polehinke was the co-pilot and sole survivor of a 2006 Comair flight that crashed in Lexington, Kentucky, killing 49.
START-UPS%20IN%20BATCH%204%20OF%20SANABIL%20500'S%20ACCELERATOR%20PROGRAMME
%3Cp%3E%3Cstrong%3ESaudi%20Arabia%3C%2Fstrong%3E%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EJoy%3A%3C%2Fstrong%3E%20Delivers%20car%20services%20with%20affordable%20prices%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EKaraz%3A%3C%2Fstrong%3E%20Helps%20diabetics%20with%20gamification%2C%20IoT%20and%20real-time%20data%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EMedicarri%3A%3C%2Fstrong%3E%20Medical%20marketplace%20that%20connects%20clinics%20with%20suppliers%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EMod5r%3C%2Fstrong%3E%3A%20Makes%20automated%20and%20recurring%20investments%20to%20grow%20wealth%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EStuck%3A%3C%2Fstrong%3E%20Live%2C%20on-demand%20language%20support%20to%20boost%20writing%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EWalzay%3A%3C%2Fstrong%3E%20Helps%20in%20recruitment%20while%20reducing%20hiring%20time%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EUAE%3C%2Fstrong%3E%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EEighty6%3A%20%3C%2Fstrong%3EMarketplace%20for%20restaurant%20and%20supplier%20procurements%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EFarmUnboxed%3A%20%3C%2Fstrong%3EHelps%20digitise%20international%20food%20supply%20chain%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3ENutriCal%3A%3C%2Fstrong%3E%20Helps%20F%26amp%3BB%20businesses%20and%20governments%20with%20nutritional%20analysis%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EWellxai%3A%3C%2Fstrong%3E%20Provides%20insurance%20that%20enables%20and%20rewards%20user%20habits%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EEgypt%3C%2Fstrong%3E%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EAmwal%3A%3C%2Fstrong%3E%20A%20Shariah-compliant%20crowd-lending%20platform%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EDeben%3A%3C%2Fstrong%3E%20Helps%20CFOs%20manage%20cash%20efficiently%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EEgab%3A%3C%2Fstrong%3E%20Connects%20media%20outlets%20to%20journalists%20in%20hard-to-reach%20areas%20for%20exclusives%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3ENeqabty%3A%3C%2Fstrong%3E%20Digitises%20financial%20and%20medical%20services%20of%20labour%20unions%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EOman%3C%2Fstrong%3E%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EMonak%3A%3C%2Fstrong%3E%20Provides%20financial%20inclusion%20and%20life%20services%20to%20migrants%3C%2Fp%3E%0A
Arabian Gulf Cup FINAL
Al Nasr 2
(Negredo 1, Tozo 50)
Shabab Al Ahli 1
(Jaber 13)
Abaya trends
The utilitarian robe held dear by Arab women is undergoing a change that reveals it as an elegant and graceful garment available in a range of colours and fabrics, while retaining its traditional appeal.
The specs
Engine: 1.5-litre turbo
Power: 181hp
Torque: 230Nm
Transmission: 6-speed automatic
Starting price: Dh79,000
On sale: Now
Greatest Royal Rumble results
John Cena pinned Triple H in a singles match
Cedric Alexander retained the WWE Cruiserweight title against Kalisto
Matt Hardy and Bray Wyatt win the Raw Tag Team titles against Cesaro and Sheamus
Jeff Hardy retained the United States title against Jinder Mahal
Bludgeon Brothers retain the SmackDown Tag Team titles against the Usos
Seth Rollins retains the Intercontinental title against The Miz, Finn Balor and Samoa Joe
AJ Styles remains WWE World Heavyweight champion after he and Shinsuke Nakamura are both counted out
The Undertaker beats Rusev in a casket match
Brock Lesnar retains the WWE Universal title against Roman Reigns in a steel cage match
Braun Strowman won the 50-man Royal Rumble by eliminating Big Cass last
CABINET%20OF%20CURIOSITIES%20EPISODE%201%3A%20LOT%2036
%3Cp%3E%3Cstrong%3EDirector%3A%20%3C%2Fstrong%3EGuillermo%20del%20Toro%3Cbr%3E%3Cstrong%3EStars%3A%3C%2Fstrong%3E%20Tim%20Blake%20Nelson%2C%20Sebastian%20Roche%2C%20Elpidia%20Carrillo%3Cbr%3ERating%3A%204%2F5%3C%2Fp%3E%0A
2025 Fifa Club World Cup groups
Group A: Palmeiras, Porto, Al Ahly, Inter Miami.
Group B: Paris Saint-Germain, Atletico Madrid, Botafogo, Seattle.
Group C: Bayern Munich, Auckland City, Boca Juniors, Benfica.
Group D: Flamengo, ES Tunis, Chelsea, Leon.
Group E: River Plate, Urawa, Monterrey, Inter Milan.
Group F: Fluminense, Borussia Dortmund, Ulsan, Mamelodi Sundowns.
Group G: Manchester City, Wydad, Al Ain, Juventus.
Group H: Real Madrid, Al Hilal, Pachuca, Salzburg.
UAE Falcons
Carly Lewis (captain), Emily Fensome, Kelly Loy, Isabel Affley, Jessica Cronin, Jemma Eley, Jenna Guy, Kate Lewis, Megan Polley, Charlie Preston, Becki Quigley and Sophie Siffre. Deb Jones and Lucia Sdao – coach and assistant coach.