Confronting todays very real and very vicious threats. Donald trump also condemns the u. S. Intelligence leaks in the Manchester Attack after uk Prime Minister theresa may raises her dissatisfaction in a brief chat at the nato meeting. Sterling hitting a twoweek low against the u. S. Tlar adollar a twomonth low after the party sees its lead reduced further in the election poll. Good morning. Glad youre with us once again on this friday morning. Its the end of the week. It is the friday before a long bank holiday. Many european markets are taking a bridge day. Volumes once again today are somewhat lower. We are seeing outperformance in the ftse 200. This has to do with the drop of sterling. This is on the back of the latest poll showing the lead of the conservatives against the stories down to just 5 . The cac 40 off by 0. 4 . Lets get back to the big story. Our headline today, that is, of course, the oil story. Oil prices continue to drop, thats having a negative impact on the oil stocks across europe. Bp off by just a tad, but italy off by 1 . Crude prices continue to slide after tumbling nearly 5 , thats following opec and other Major Oil Producers decision not to increase production cuts. The Oil Producers merely agreed to extend existing production caps through march of 2018, but kept levels steady. Steve joins us once again live from vienna. I guess that was a fairly underwhelming meeting when it comes to market expectations. The market has a lot of ideas, and i likened it all morning to an activist investor verses a longterm shareholder. The market wants something now. It wants its adrenaline rush. Opec turned around and said we have a longterm strategy, we have a historic strategy which you guys all liked sick montx m ago and were sticking with it. When we fell from about 52 bucks, 53 bucks on brent to 47, they started using some of their ammo they were going to use at this meeting early and started getting out there there would be a ninemonth extension. By the time we got to the meeting yesterday, market wanted more, deeper cuts, something to sustain its adrenaline. And it didnt get it. I think the market is in a bit of a wobble. Today prices are better, just a little bit. They could come off again when the u. S. Starting trading aggressively. They decided they have a strategy that will over q2, q3, q4 that will drain the market of excess oil. They were saying yesterday they think they could do it in six months. This is what the Saudi Oil Minister told me. They have gone for nine months because they think the First Quarter of 2018 is going to be weak demand any way. I did speak to the Saudi Oil Minister, the architect of the action of these 24 nations, its not just opec, i said what if the price does fall . Will you start reacting to that price coming off and cut deeper . Lets listen in. Price is not the key indicator that im looking at. Were looking at inventories. Inventories ultimately will drive other indicators, including investment, including price, including stocks of companies, and operators as well as service companies. So if we focus on the fundamentals that we can control, the market will move in the right direction. Lets be very clear, they think they will get the market from oversupply to deficit by doing this strategy. They think they will get the market from multiyear highs, record levels in some products, and get that down to fiveyear averages, which means take iing off. Opec put their own inventories into the First Quarter as well which douses some of the effect. There has been some lack of compliance from some such as the iraqis and uae, but they have had 102 compliance in the most recent period. So they think in the heavy demand period of the latter part of q2 and 3q and 4q. There are three big x factors. One, will compliance wane. Two, will shale fill the gap. Three, what will happen to demand . Lets pick up these points with the head of Commodities Research from bank of America Merrill lynch. Lets pick up on compliance. If oil prices do move higher on the back of this ninemonth extension, at what point do you think nonopec producers, like russia for example, drop off when it comes to compliance . Its true what steve said. Compliance has been surprisingly strong. We have never seen an opec deal with such strong commitment, real commitment. The interesting thing is the market this time around doesnt want to listen to opec anymore. Opec completely lost grip on the market in terms of rhetoric. They want to see action. It is true the actions have been positive. We do believe the market will go into a steep deficit especially in the third quarter, which will be unseasonal. We do believe inventories will come down significantly during the course of the year. It should bring a shift in the structure, which by the way is what theyre really targeting. They want to have higher spot prices than forward prices to penalize forward sellers. We do think the market will rally on the back of that. Is compliance going to drop . It probably will. If we go from 100 to 90 , the real worry we have is libya and nigeria. Compliance opec failed to bring inventories down in the First Quarter when libya and nigeria had saw disappointing production levels. What will happen now that these two countries come back. Sure. Steve . I hear your questions over nigeria and libya. Al alfalih was asked about this. He said were throwing these countries a bone, were giving them slack, but the other two countries, like the relationship between saudi and russia. Theyre talking about trust. I think the body language between mr. Novak and al falih is striking. Technologically, fighting isis, in terms of pivot and who your allies will be, and just a pure trust level, theres a shift between russia and saudi. Are you picking up on that . If so, do you think it could be significant for the relationship between these two key suppliers . We are picking up on that. It was a historic agreement in the first place that saudi and russia came together and hammered out such a big deal. We do see there is much more of a reproachment. We also on the other hand see the fact that russia has a president ial election in march next year which is likely why they were only able to agree to a ninemonth extension at this point and russia has a huge amount of greenfield production coming into the market. That will make it more difficult for russia to manage further production cuts if the deal needed to be extended more and beyond the president ial election. Im glad you picked up on that point. Its something i thought yesterday. Isnt it interesting you have the election of the president on the 18th of march and they dont want add ripples to what should be a smooth process. So the markets also want something today, but they are also looking ahead to the end of march next year as well, when as you quite rightly say, discipline could be interesting. It could all break down. You could see countries really trying to pour oil back on the market because they are under so much pressure. They have said jmmc could elongate, it could make new recommendations, its meeting every other month. Between now and the end of march do you think they will tweak the strategy and potentially cut deeper . Its very, very difficult for them to cut deeper. What happens if opec was to cut production now . You would of course get a price reaction. At the same time you would get a huge, huge reaction from shale. We have to remember that the shale cost curve is flat at the point were in now. If you get a bit of a price acceleration, you will get a very large excacceleration in se production. Remember also that opec plus russia has lost market share. This is likely to be a permanent loss in market share. A permanent increase in opecs spare capacity, which is bearish for the elongated oil prices. Its difficult for opec to cut deeper. At the same time its difficult for them to go back to a market share war. Their fiscal situation is so tight. Fx reserves are running down so quickly. Saudi still has a 12 gdp budget deficit this year at our expe expected average brent price of 54 a barrel. To us, all they can do is extend, pretend and hope demand will come back. That is clearly also a big issue for them in the First Quarter, demand has been so disappointingly weak. You mentioned the cost curve of u. S. Producers. One interesting note talked about the fact that maybe theres a misunderstanding between the saudis and the u. S. The saudis seem to think cost inflation is hitting the cost curve of the u. S. Producers. The note was saying this is not the point. Thats the Million Dollar question, we spend a lot of time thinking about that, talking about that internally, trying to understand this. Clearly we do know costs are going up. We do know that. If you look at the daily ric rate which has gone from 15,000 to 17,000, and it will continue to go up. Theres other pockets of service cost inflation. Labor is quite tight. The issue is efficiencies are also continuing to increase. Thats offsetting some of this cost inflation. We believe costs overall will go up, but not by the 20 , 30 that people are touting. It will probably be more muted at 10 , 15 . Some of the mock kpockets of these cost pressures will get fixed. People will come back into the market and we may also see availability of mine sand go up later this year. Yes, there will be kostin flac t cost inflation, but probably not that much. Regardless of how cautious they were about the ninemonth extension, about how its working well, that is almost unprecedented. Even if they always agree at the end of the day, you see a lot of contentions from the iranians and on the basis of a saudi policy. How long will iran and iraq who have enormous reserves, about p 300 barrels between them in the ground, because they are both desperate to grow the reserves by several Million Barrels a day. Again. What really brought about the opec deal on december 8th last year was an agreement between saudi and iraq. The fact that iraq had massive funding pressures through summer last year and finally after the agreement they were able to go into the market and raise find themselves externally. We think iraq will stay on the line for now. They do need to see higher prices. But over the longterm it will be difficult. In particular i will say for iran. Iran will be increasing production over the course of 2018. Nigeria and libya will be increasing production. That alone is probably Something Like 300,000 barrels a day off of supply increase. It will be really difficult to manage this exit strategy. But to us, you know, a return to a full blown market share war doesnt make sense. At the same time to cut production more aggressively is also difficult. Extend and pretend. Thats a very good point. Extend and pretend, almost sounds like a central bank. You talk about exit strategies and extend and pretend. Sabina, thank you very much. Also want to thank steve sedgwick, of course who hopefully got more out of this opec meeting than just pastries and the wienerschnitzel. Thank you very much, steve. What i want to show you is the ftse 100 in the uk, currently up by 0. 2 . There you go. 7,533. Easily taking out the 7,500 level once again. And its hit that fresh high this morning on the back of the poll showing that theres a further tightening in the election polls in favor of labor. Conservatives lead is only 5 points. Thats obviously putting a lot of pressure on the currency. Email the show, streetsignseurope cnbc. Com. You can find us on twitter, cnbc and tweet me at carolincnbc. The tranquillity of the low ke location belies the uncertainty of the location of the meeting of the g7 7. We head out to this beautiful spot after the break. Cdw implemented Dell Poweredge servers with intel xeon processors to allow people to work from anywhere, so lucky me. So nobody wants coffee . hey, can i get a couple copies . Enhanced mobility by dell. I. T. Orchestration by cdw. The future isnt silver suits anits right now. S, think about it. We can push buttons and make cars appear out of thin air. Find love anywhere. Hes cute. And buy things from, well, everywhere. How . Because our phones have evolved. So isnt it time our networks did too . Introducing americas largest, most reliable 4g lte combined with the most wifi hotspots. Its a new kind of network. Xfinity mobile. Welcome back to the show. Lets take you straight to sicily where donald dusk and Jeanclaude Juncker are about to deliver a press conference. Lets listen in. Our role is to do everything to maintain the university of the g7 on all fronts. Most importantly, University Needs to be maintained when it comes to defending the rulesbased international order. Each day we are confronted with these Strategic Global problems that pose a threat to peace and security in europe, in asia, and in the middle east. From the war in syria and russian aggression in ukraine to nuclear and Ballistic Missile tests in north korea and Land Reclamation in the south china sea. If our group is not determined and united enough, the situation in the world can really get out of hand. I expect that the g7 will demonstrate unity regarding the conflict in ukraine. We fully support ukraines independence, territory and sovereignty. A solution to this conflict can only be reached with the full implement of the agreement. Since our last g7 summit in japan, we have not seen anything that would justify a change in our sanctions policy towards russia. Therefore i will appeal to the other g7 leaders to reconfirm this policy. The g7 should also remain united when it comes to ending the brutality in syria. We should be ready to increase our efforts to defeat terrorism in syria and to find a political settlement. A special responsibility rests on the shoulders of those who, like iran and russia, have become involved in the crisis and cooperate with the assad regime. Instead of wasting time, they should use their influence to enact a ceasefire, stop the use of chemical weapons, and ensure safe and immediate humanitarian access to all the people in need. Finally, let me say that we also need g7 university in managing crisis. This is a Global Challenge but also in sicily a local problem. It was to keep the current level in addressing this crisis. Whether it will succeed remains an open question. Thank you. Thank you. Now to the president of the european commission, Jeanclaude Juncker. Yes. Im happy to be here. Im happy to be here in taormina for this g7 summit. I would like to thank president gentiloni for his hospitality. We will meet in a few moments from now, and there are four new leaders around the table. So, we are only stable on the international we are the veterans. We are veterans, but we are not old. So it will be very interesting to notice this in a better way, though we have seen some of them yesterday. And today. We stand up here as we are always doing for our shared values of freedom, democracy, rule of law and respect for human rights. We do believe, as europeans, in open societies, and we are always seeking multilateral solutions. We want to build bridges, not walls. But we have to understand those here and elsewhere who do not see how globalization works for them. Those 45 of europeans who do think that globalization is a threat, and not an opportunity. Who think that its an opportunity if dealt with in a proper way. We have to put fairness at the heart of everything the g7 and our partners do. Thats mainly related to trade and to all trade issues. All right. Thats Jeanclaude Juncker, the Eu Commission president speaking there at the g7 in sicily. This time he chose to speak in english, not in french. Lets get out to willem who joins us from the g7 in taormina. Mr. Tusk was saying this is one of the most challenging g7 in years. Though with four new Members Around the table its a challenging makeup to address some of those headwinds. The italian motto for this meeting in sicily is about rebuilding the found dag ations renewed trust that is focused on these new relationships for some of these leaders who have not appeared at a g7 meeting before. Jeanclaude juncker wants a rules based order to be a priority that seems to be a vailed remark about the u. S. We heard about Ukraine Territorial integrity, the need for the russians to adhere to the minsk agreement. Talking about russian sanctions, he said there is no reason to look at any changes to International Sanctions on russia. Last night on air force one traveling down here, President Trumps economic adviser was asked whether the u. S. Was of agreement with that, and essentially said that President Trump is looking at sanctions on russia. He would not give a specific answer to that. We hear about the migration crisis. Thats close to the italian leaders heart in sicily. This is ground zero for that european migration crisis. Weve seen tens of thousands migrating from north africa and landing on shores here. That will be the focus of conversation for the next several days. They say you can tell a lot about a man through his handshake but the u. S. President seems to offer few clues with a series of unpredictable handshake photoopes. As we go to break, look at some of Donald Trumps most memorable palmpressing moments. Hello, hello, hello, hello hello, hello, hello, hello, hello hello, hello, hello, hello, hello, hello hello. Welcome to street signs. Im carolin roth. Crude bounces back from the worst losses in three weeks but Oil Stocks Still drag the markets lower. The Saudi Energy Minister tells cnbc price is not the problem. We focus on the fundamentals that we can control. The market will move in the right direction. Pay up. Thats the message from President Trump telling his nato leaders to increase defense spending and accusing them of owing massive sums to the United States and the alliance. 2 is the bear minimum for conf