Exclusive: How Putin, Khamenei and Saudi prince got OPEC deal done

Oil prices surge as OPEC reaches production deal

VIENNA Russian President Vladimir Putin played a crucial role in helping OPEC rivals Iran and Saudi Arabia set aside differences to forge the cartel"s first deal with non-OPEC Russia in 15 years.

Interventions ahead of Wednesday"s OPEC meeting came at key moments from Putin, Saudi Deputy Crown Prince Mohammed bin Salman and Iran"s Supreme Leader Ayatollah Ali Khamenei and President Hassan Rouhani, OPEC and non-OPEC sources said.

Putins role as intermediary between Riyadh and Tehran was pivotal, testament to the rising influence of Russia in the Middle East since its military intervention in the Syrian civil war just over a year ago.

It started when Putin met Saudi Prince Mohammed in September on the sidelines of a G20 gathering in China.

The two agreed to cooperate to help world oil markets clear a glut that had more than halved oil prices since 2014, pummeling Russian and Saudi government revenues. Oil prices are up 10 pct this week topping $53 a barrel.

The financial pain made a deal possible despite the huge political differences between Russia and Saudi over the civil war in Syria.

"Putin wants the deal. Full stop. Russian companies will have to cut production," said a Russian energy source briefed on the discussions.

In September, OPEC agreed in principle at a meeting in Algiers to reduce output for the first time since the 2008 financial crisis.

But the individual country commitments required to finalize a deal at Wednesday"s Vienna meeting still required much diplomacy.

Recent OPEC meetings have failed because of arguments between de facto leader Saudi Arabia and third-largest producer Iran. Tehran has long argued OPEC should not prevent it restoring output lost during years of Western sanctions.

Proxy wars in Syria and Yemen have exacerbated decades of tensions between the Saudi Sunni kingdom and the Iranian Shi"ite Islamic republic.

BRINKMANSHIP

Heading into the meeting, the signs were not good. Oil markets went into reverse. Saudi Prince Mohammed had repeatedly demanded Iran participate in supply cuts. Saudi and Iranian OPEC negotiators had argued in circles in the run-up to the meeting.

And, then, just a few days beforehand, Riyadh appeared back away from a deal, threatening to boost production if Iran failed to contribute cuts.

But Putin established that the Saudis would shoulder the lion"s share of cuts, as long as Riyadh wasn"t seen to be making too large a concession to Iran. A deal was possible if Iran didn"t celebrate victory over the Saudis.

A phone call between Putin and Iranian President Rouhani smoothed the way. After the call, Rouhani and oil minister Bijan Zanganeh went to their supreme leader for approval, a source close to the Ayatollah said.

"During the meeting, the leader Khamenei underlined the importance of sticking to Iran"s red line, which was not yielding to political pressures and not to accept any cut in Vienna," the source said.

"Zanganeh thoroughly explained his strategy ... and got the leader"s approval. Also it was agreed that political lobbying was important, especially with Mr. Putin, and again the Leader approved it," said the source.

On Wednesday, the Saudis agreed to cut production heavily, taking "a big hit" in the words of energy minister Khalid al-Falih - while Iran was allowed to slightly boost output.

Iran"s Zanganeh kept a low profile during the meeting, OPEC delegates said. Zanganeh had already agreed the deal the night before, with Algeria helping mediate, and he was careful not to make a fuss about it.

After the meeting, the usually combative Zanganeh avoided any comment that might be read as claiming victory over Riyadh.

"We were firm," he told state television. "The call between Rouhani and Putin played a major role ... After the call, Russia backed the cut."

IRAQ LAST-MINUTE HITCH

But OPEC would not be OPEC without a last-minute quarrel threatening to derail the deal. Iraq became a problem.

As ministerial talks got underway, OPEC"s second-largest producer insisted it could not afford to cut output, given the cost of its war against Islamic State.

But, facing pressure from the rest of OPEC to contribute a cut, Iraqi Oil Minister Jabar Ali al-Luaibi picked up the phone in front of his peers to call his prime minister, Haider al-Abadi.

"Abadi said: "Get the deal done". And that was it," one OPEC source said.

(additional reporting Alex Lawler and Ahmad Ghaddar; editing by Dmitry Zhdannikov and Richard Mably)

Source: http://www.reuters.com/article/us-opec-meeting-idUSKBN13Q4WG

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Leaner and meaner: US shale greater threat to OPEC after oil price war

Oil prices surge worldwide as OPEC hashes out a deal to cut production | Manorama News

In a corner of the prolific Bakken shale play in North Dakota, oil companies can now pump crude at a price almost as low as that enjoyed by OPEC giants Iran and Iraq.

Until a few years ago it was unprofitable to produce oil from shale in the United States. The steep slide in costs could encourage more U.S. shale output if OPEC members cut supplies, undermining the producer group"s ability to boost prices. OPEC ministers meet Wednesday to weigh output cuts to end a two-year glut that has pressured global oil prices.

In shale fields from Texas to North Dakota, production costs have roughly halved since 2014, when Saudi Arabia signaled an output free-for-all in an attempt to drive higher-cost shale producers out of the market.

Rather than killing the U.S. shale industry, the ensuing two-year price war made shale a stronger rival, even in the current low-price environment.

In Dunn County, North Dakota, there are around 2,000 square miles where the cost to produce Bakken shale is $15 a barrel and falling, according to Lynn Helms, head of the state"s Department of Mineral Resources.

"The success in Dunn County has been fantastic," said Ron Ness, president of the North Dakota Petroleum Council.

Dunn County"s cost is about the same as Iran"s, and a little higher than Iraq"s. Dunn County produces about 200,000 barrels of oil a day, about a fifth of daily production in the state.

It is North Dakota"s sweet spot because it boasts the lowest costs in the state, yet improved technology and drilling techniques have boosted efficiency for the whole state and the entire U.S. oil industry.

The breakeven cost per barrel, on average, to produce Bakken shale at the wellhead has fallen to $29.44 in 2016 from $59.03 in 2014, according to consultancy Rystad Energy. It added that in terms of wellhead prices, Bakken is the most competitive of major U.S. shale plays.

Wood Mackenzie said technology advances should further reduce breakeven points.

Landlocked Bakken producers still need a substantially higher international price than their breakeven cost to make a profit, since they pay more to transport crude to market than producers in most other U.S. regions.

International oil prices of $45 a barrel are enough for some Bakken producers to profit, Ness said, and $55 would encourage production growth.

Source: http://www.cnbc.com/2016/11/30/leaner-and-meaner-us-shale-greater-threat-to-opec-after-oil-price-war.html

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Oil soars on OPEC hopes, dollar renews its surge

Saudi Arabia faces resistance to oil cuts, inside and outside OPEC
By Richard Leong | NEW YORK

NEW YORK Oil jumped on Wednesday as OPEC members clinched a deal to cut production, while upbeat U.S. economic data and comments from the U.S. Treasury Secretary nominee triggered a selloff in the bond market.

Higher crude prices bolstered shares of energy producers and stock prices around the world, with the Dow and S&P 500 hitting record highs.

An improving view on global growth, led by the United States on hopes of tax cuts and federal spending under a Trump administration, rekindled the dollar"s push toward a near 14-year peak.

"Everything seem to be coming together for more growth and risk appetite," said Larry Milstein, head of agency and government trading at R.W. Pressprich & Co. in New York.

Stronger investor confidence reduced safe-haven demand for gold, which was on track for its steepest monthly loss since mid-2013.

The Organization of the Petroleum Exporting Countries has agreed its first output limiting deal in eight years in an effort to deal with global supply overhang, an OPEC source told Reuters as the debates continued in Vienna on the exact size of each member"s cuts.

Brent crude LCOc1 was last up $3.58, or 7.72 percent, at $49.96 a barrel. U.S. crude CLc1 was last up $3.28, or 7.25 percent, at $48.51 per barrel.

The rally in energy shares helped lift the Dow and S&P 500 to record intraday highs. The blue-chip U.S. stock indexes were also boosted by bank stocks on bets of loosening of regulation under Trump and a Republican-controlled Congress.

The Dow Jones industrial average .DJI rose 66.43 points, or 0.35 percent, to 19,188.03, the S&P 500 .SPX gained 2.69 points, or 0.12 percent, to 2,207.35 and the Nasdaq Composite .IXIC dropped 23.18 points, or 0.43 percent, to 5,356.73.

European stocks also advanced on a jump in oil companies .SXEP. But regional banks struggled after news Royal Bank of Scotland (RBS.L) failed a Bank of England stress test and Italian lenders fell before a referendum on the country"s political system on Sunday. [.EU]

The jump in oil prices, together with stronger-than-expected data on U.S. private job growth and regional manufacturing on Wednesday, ignited a wave of selling in bonds, pushing benchmark U.S. yields toward their highest levels since July 2015.

An aversion to own long-dated U.S. government bonds grew following comments from U.S. Treasury nominee Stevem Mnuchin who told CNBC television: "We"ll look at potentially extending maturity of the debt because eventually we"re going to have higher interest rates."

U.S. 10-year Treasury note yield US10YT=RR rose 10 basis points to 2.40 percent, a tad below last week"s 2.42 percent that was the highest since July 2015.

German 10-year Bund yield was 4 basis points higher at 0.26 percent, while Japanese 10-year yield edged up 1 basis point at 0.03 percent. DE10YT=RR JP10YT=RR

Rising U.S. yields and upbeat domestic data pushed the dollar index .DXY up 0.72 percent at 101.66, which was still short of the near 14-year high of 102.05 set last week.

Meanwhile, gold XAU= was on track for its biggest monthly decline since mid-2013, largely pressured by the bets of a series of U.S. interest rate hikes over the next year as U.S. growth seemed to accelerating.

Spot gold prices XAU= fell $16.81 or 1.41 percent, to $1,171.53 an ounce.

(Additional reporting by Marc Jones, Jemima Kelly in London; Editing by Susan Thomas and Nick Zieminski)

Source: http://www.reuters.com/article/us-global-markets-idUSKBN13N00Y

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