INSUBCONTINENT EXCLUSIVE:
By Javier Blas and Grant SmithFor more than two decades, Opec has tried to avoid repeating a mistake that cost it dearly
In November 1997, at a meeting in Jakarta, Saudi Arabia convinced fellow oil producers to boost output, ignoring a crisis brewing in
emerging markets.
The output increase came at the worst possible time
What in November 1997 looked like a hiccup, by mid-1998 was a full emerging-markets crisis spreading to Russia and Brazil
Global oil demand growth slowed, in part because of an unusually warm winter in the northern hemisphere
Benchmark oil prices fell below $10 a barrel, the lowest since the 1973-74 oil embargo.
For Saudi Arabia, it was a painful blunder, and one
that Organization of Petroleum Exporting Countries officials have vowed never to repeat
Now the cartel is facing trouble again in emerging markets
And yet, signs abound of slower economic growth from Turkey to China.
"The balance of risk clearly indicates that the slowdown in the global
economy would have by far the biggest impact on oil prices compared to supply shocks," said Bassam Fattouh, director of the Oxford Institute
for Energy Studies.
The oil ministers of Saudi Arabia, Russia and a handful of other nations are scheduled to hold a conference call at the
end of the month to discuss the market
This is a new practice by the so-called Joint Ministerial Monitoring Committee, which includes ministers from both Opec and non-Opec
countries, to oversee compliance with the production cuts agreed to in late 2016.
Futures under pressureBrent fell to a four-month low of
$70.30 this week -- down about 13 per cent from a peak of $80.50 in mid-May
The international benchmark was dragged lower by slower buying from China, higher Opec and Russian production and concern that trade wars
will slow economic growth and cause global energy demand to contract.
Since 1997, Opec has become cautious about any sign of economic
As the oil cliche goes, Riyadh was still haunted by the "Ghost of Jakarta".
For Saudi Arabia, the turmoil in emerging markets is another
complication in an already testy environment
Opec has sought to adjust production in response to the unknowns of the impact of US sanctions on Iranian crude and the collapse in
The kingdom, according to people briefed by Saudi officials, would prefer to be cautious.
Where to look in the oil market for clues of a
demand slowdownThe wariness already explains why Riyadh cut production in July after hiking it in June, the same people said, asking not to
be named discussing private conversations
Saudi Arabia told Opec it pumped 10.35 million barrels a day last month, down from almost 10.5 million in June.
Yet, while the turmoil gives
Annual oil demand growth remains above the 10-year average
1997-1998, Opec was split, with Venezuela over-pumping and the cartel often flouting its own output targets
Azerbaijan and Mexico.
Economic headwindsThe International Monetary Fund said in July that the pace of expansion in some economies has
Still, the IMF said it expected global growth in 2019 at 3.9 per cent, the same rate as this year
Chinese growth, however, will slow down to 6.4 per cent from 6.6 per cent.
The International Energy Agency is also cautions
For now, it has made no changes to its underlying economic and oil demand assumptions it said earlier this month
But it said that demand growth ease later this year and in 2019.
Since the IMF and the IEA published their views, emerging-market
currencies, equities and bonds have weakened, increasing risks to the outlook for demand.
"Even by always-tough-to-predict oil market
But if the Saudis increase output just as "trade fears and emerging market weakness draw down demand, prices could collapse, as they did
late 1990s when Opec hiked output just before the Asian financial crisis," he said
