All eyes are looking towards the next Organization of the Petroleum Exporting Countries meeting rapidly approaching the following week, on December 4th. The meeting will be vital for the crude oil market as record global inventory weighs on the outlook for oil prices. With production currently exceeding the group’s aggregate output target of 30 million barrels per day, it is now feared that the amount will be further increased to 31 million barrels as Indonesia reactivates its OPEC membership, adding to the group’s total oil production. OPEC, just a year ago, moved to a policy of allowing the market to set prices for the first time, instead of trying to stabilize them with a production response. The reality for the cartel which is expected to cooperate on price stability has been a constant state of deviation, often in excess of agreed upon output targets. Initially, OPEC’s largest producer Saudi Arabia took that stance stating that anyone who decides to cut back on production is giving away market share to competitors. It more recently remarked that the nation would not move cut production unless other producers participated, particularly higher-cost producers such as the US and Russia.
Saudi Arabia’s plan to eliminate competition to preserve and increase market share with increased oil supply has resulted in an increasingly fractious relationship with other members struggling from the drop in prices including Venezuela, Algeria and Iran. Venezuelan Oil Minister, Eulogio Del Pino, urged the cartel to adopt an “equilibrium price” at approximately $88 per barrel to end the crisis of the country’s economic contraction. The Oil Minister also stressed the fact that if oversupply persists then oil prices might fall to mid-$20s. OPEC is facing a particular large looming challenge from Iran since the nation has committed to revive oil production regardless of the price impact. Since current sanctions prevent expanded exports, Iran intends to make up for lost time by raising production and fighting to reclaim market share from other members. On Monday, Saudi Arabia’s cabinet claimed it was ready to cooperate with OPEC and non-OPEC countries to achieve market stability, a few days before the OPEC meeting to review its year-long policy of not supporting prices. Nevertheless, while most oil-related officials stated that they are hoping for a cut in output targets, none believe that OPEC will dramatically shift policy.
OPEC on the Horizon
Andamento del mercato - 24/11/2015