Oil price seen fall­ing to $60 if OPEC does not cut out­put

Financial Mirror (Cyprus) - - FRONT PAGE -

Oil prices could plunge to $60 a bar­rel if OPEC does not agree a sig­nif­i­cant out­put cut when it meets in Vi­enna this week, mar­ket play­ers say in a re­port pub­lished by Hel­len­ic­ship­pingnews.com.

Brent crude fu­tures have fallen 34% since June to touch a four-year low of $76.76 a bar­rel on Novem­ber 14, and could tum­ble fur­ther if OPEC does not agree to cut at least 1 mln bpd, com­mod­ity fund man­agers say.

“The mar­ket would ques­tion the cred­i­bil­ity of OPEC and its in­flu­ence on global oil mar­kets if there was no cut,” said Daniel Bathe, of Lu­pus al­pha Com­mod­ity Invest Fund. That could send Brent down to around $60, Bathe said. “Herd­ing be­hav­iour and a shift to net neg­a­tive spec­u­la­tive po­si­tions should ac­cel­er­ate the price plunge,” he added.

Fund man­agers are di­vided over whether OPEC will reach an agree­ment on cut­ting out­put. Bathe put the like­li­hood at no more than 50%.

The oil price has been fall­ing since the sum­mer due to abun­dant sup­ply — partly from U.S. shale oil — and low de­mand growth, par­tic­u­larly in Europe and Asia.

As a re­sult, some in­vestors be­lieve a small cut —

of around 500,000 bpd mar­kets.

Doug King, chief in­vest­ment of­fi­cer of RCMA Cap­i­tal, sees Brent fall­ing to $70, even with a cut of 1 mln bpd.

If OPEC fails to agree a cut, prices will drop “fur­ther and quite quickly”, with U.S. crude pos­si­bly slid­ing to $60, he said. U.S. crude closed at $76.51 on Fri­day, with Brent just above $80.

With mem­ber states strug­gling to bal­ance bud­gets, many OPEC coun­tries will be push­ing for an out­put cut.

“Prices be­low $80 are putting sig­nif­i­cant strain on the car­tel’s weak­est mem­bers such as Venezuela,” said Ni­co­las Robin, a com­modi­ties fund man­ager at Thread­nee­dle.

He said a big­ger cut - of 1 mln bpd or more - was an “out­lier sce­nario”, but such a move would rapidly push prices above $85.

“A move higher would likely be ac­cel­er­ated by the lack of liq­uid­ity owing to the U.S. (Thanks­giv­ing) hol­i­day,” Robin added.

Doug Hep­worth of Gre­sham In­vest­ment Man­age­ment said: “A sur­prise sig­nif­i­cant cut, say of 2 mln bpd, is needed

- would not be enough to calm the to push prices back up to $80. And that would have to be ac­com­pa­nied by some new-found dis­ci­pline in the non-Saudi mem­bers.”

The mar­ket has been awash with con­spir­acy the­o­ries as to why Saudi Ara­bia has not al­ready in­ter­vened. New York Times colum­nist Thomas Friedman hinted at “a global oil war un­der way pit­ting the United States and Saudi Ara­bia on one side against Rus­sia and Iran on the other.”

Tom Nel­son, of In­vestec Global En­ergy Fund, said Saudi Ara­bia had al­lowed the price to fall to in­cen­tivise the smaller OPEC pro­duc­ers, which of­ten rely on the big­gest pro­ducer to in­ter­vene, to join Riyadh in cut­ting out­put.

“They (the Saudis) want to cut but they don’t want to cut alone,” Nel­son said, adding that a cut of 1-1.5 mln bpd should be suf­fi­cient to bal­ance the mar­ket.

“The mar­ket re­ally wants to see that OPEC is still func­tion­ing … if there is a small cut, with an ac­com­pa­ny­ing state­ment of co­her­ence from OPEC that presents a united front, and talks about see­ing de­mand re­cov­ery, and some mod­er­a­tion of sup­ply growth, then Brent could move up to $80-$90.”

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