OPEC Lurches From Pump All You Can to Mulling Cuts in Just Days

OPEC signaled it could cut output in 2019 due to concerns about rising oil inventories and economic uncertainty, lurching away from a pledge made just days ago to pump flat out.

The cartel’s vacillations came as the sizable crude-price gains of September vanished in an October rout. If the group follows through, it could change the outlook of the oil market and reignite the ire of U.S. President Donald Trump, who has repeatedly demanded that OPEC keep prices low.

A committee of producers including Russia and Saudi Arabia highlighted on Thursday the need to prepare “options” for how much oil they should pump next year to prevent the market slipping back into imbalance. The group, which since May has been boosting production, said the rise in oil inventories in recent weeks coupled with fears about an economic slowdown “may require changing course.”

That was the clearest sign yet they could resume output cuts and a jarring reversal from Saudi Energy Minister Khalid Al-Falih’s observation on Tuesday that the cartel was in “produce as much as you can mode.”

Competing Forces

These gyrations reflect the proliferation of huge risks to both supply and demand: From the slump in global equity markets to signs of weakness in the global economy; from the collapse of Venezuela’s oil industry to U.S. efforts to sanction Iran’s crude exports out of existence.

Meanwhile, the world’s largest economy has ceased to be a pacifying influence on the market. As it wages trade wars, imposes sanctions and attempts to dictate what other producers do, the U.S. has become the main culprit for knocking the market off balance, according to Igor Sechin, Chief Executive Officer of Russia’s largest producer Rosneft PJSC.

Key players in the market are now issuing contradictory warnings, with the International Energy Agency fearing a looming shortage as OPEC frets about a resurgent glut.

“Global oil markets are going through a very sensitive period — global economic growth as well,” IEA Executive Director Fatih Birol said in an interview in London Thursday. “If the oil producers care about the health of the growth of the global economy, which I believe they do, they should take the steps to further comfort the market.”

Recent moves in Brent crude illustrate this contradiction. The international benchmark has declined more than 7 percent this month, almost perfectly retracing the rally in September.

The uncertainty and volatility in the market prompted an abundance of caution from the first major oil producers to report third-quarter earnings. Norway’s Equinor ASA’s kept its focus on continued spending restraint, even as profits jumped to a four-year high. ConocoPhillips, which posted an eightfold surge in earnings, allowed itself a 2 percent increase in capital expenditure.

The outlook for next year is very unpredictable, according to Al-Falih. “If the supply is too long, we should be able to cut,” he said in an interview with Russia’s TASS news agency. “If supply is short, we have to be able to respond.”