Saudi production cut fails to boost oil price as Chinese economy fears weigh

NICHOLAS EARL

OIL PRICES have failed to take off following OPEC’s decision to sustain heavy output cuts and Saudi Arabia’s call to unilaterally slash production by a further million barrels per day.

Both major benchmarks have effectively flatlined in this evening’s trading session, with Brent Crude down 0.16 per cent at $76.59 per barrel and WTI Crude sliding 0.04 per cent to $72.12 per barrel – firmly below Saudi Arabia’s prized break-even point of $80.

This follows Brent Crude gaining $2.60 per barrel and WTI $3.30 per barrel respectively in yesterday’s trading, after Saudi Arabia confirmed its production levels would lower from 10m barrels per day to nine million.

However, sluggish growth in China and potential recessions in the US and Europe have effectively offset Saudi Arabia’s latest cuts, weighing down expectations for demand.

Callum Macpherson, head of commodities at Investec said: “The question for the market is whether Saudi Arabia, by itself, has the capacity and willingness to manage the market. Clearly there is a fear that it does not.” windfall tax has already angered many oil and gas firms, with several currently reconsidering their pipeline of UK projects.

But it added that a Labour government also risks sending a message to investors that the UK is not secure for new energy projects more broadly, deterring future investment in renewable energy developments amid an increasingly poor financial climate.

“The prospect of a new Labour government –which plans to introduce a 'proper windfall tax' –is a major headwind to [final investment decisions],” the consultancy said.

It fears that "fiscal and political uncertainty is causing investor paralysis and could prematurely shut down the industry”.

“While some robust projects will still go ahead, investment – already at historical lows – could fall below $1bn per year by 2027.”

Labour was contacted for comment.

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