No changes expected in OPEC policy
It’ll take more than US$40 crude to make OPEC change its mind, analysts said before the group’s Dec. 4 meeting in Vienna.
In the year since the Organization of Petroleum Exporting Countries chose to defend its market share and let prices sink, a 44 per cent plunge in crude has slashed members’ revenues by almost half a trillion dollars. Undeterred, the group will press on with its strategy to batter rival producers when ministers meet next week, according to 30 analysts and traders surveyed by Bloomberg.
Saudi Arabia, OPEC’s biggest member, appears determined to see through its plan to eliminate a supply glut by squeezing out competitors like U.S. shale drillers, even as the resulting price collapse spurs dissent from Venezuela, Algeria and Iran.
The kingdom’s tactic is “having the intended effect” as non- OPEC supply heads for its steepest retreat since the fall of the Soviet Union, according to the International Energy Agency.
“There’s no reason to expect any change of heart,” said Antoine Halff, a senior fellow at the Center on Global Energy Policy at Columbia University. “The strategy is working out, it’s just not solving the problem overnight. The market is rebalancing, and there’s pressure on shale oil production, but it will take time.”
For OPEC members opposed to the kingdom’s plan, the cost has been too high. Venezuela, facing a 10 per cent economic contraction this year, has repeatedly called for a summit between OPEC and other producers to end the crisis.
Oil prices may drop to as low as the mid-US $20s a barrel unless OPEC takes action to stabilize the market, Venezuelan Oil Minister Eulogio Del Pino said on Sunday, advocating the group adopt an “equilibrium price” of US$88 that would cover the cost of new investment in production capacity.
Brent crude, the benchmark for about half the world’s crude, closed as low as US$42.69 a barrel in August, the weakest in more than six years. Prices have lost about 44 per cent in the past 12 months.
Yet, even as prices languish below levels most members need to balance their budgets, the initiative failed to win the backing of the group’s dominant Gulf-based producers.
While Saudi Arabia isn’t immune to the crisis, which has forced it to burn through currency reserves and tap bond markets to plug a 20 per cent budget deficit, the kingdom still has the financial firepower to see the strategy through.
One change ministers could agree on is an increase in the group’s output target as Indonesia rejoins after a seven-year hiatus. The ceiling may be raised to 31 million barrels a day, from the current 30 million.
There may be more to discuss as Iran aims to revive oil exports once sanctions are removed following a nuclear accord earlier this year. Iranian Oil Minister Bijan Namdar Zanganeh has said the country will restore production regardless of the impact on prices.
Even when Iranian oil is flowing again, Saudi Arabia will be in no mood to make way for its political adversary, said Mike Wittner, head of oil market research at Societe Generale SA in New York.