Consumers pin hopes on Opec meeting
Oil output increase could lower prices
HARD-PRESSED consumers are pinning their hopes on the Organisation of Petroleum Exporting Countries (Opec) meeting in Vienna, Austria, today that could see more oil pumped to slow down prices.
Opec, an organisation of 14 oil-producing countries, is expected to discuss easing oil output, a move that could see a slump in oil prices.
NKC African Economics senior economist Elize Kruger yesterday said, with fuel price hikes in excess of R2 a litre in petrol and diesel over the past three months, South African consumers were feeling the strain. “We should hold thumbs that the Opec and non-Opec partners agree to pump more oil, as it will alleviate the current tightness in the global oil market and should result in lower oil prices,” said Kruger, adding that any decline in global prices would offset the negative impact of a weaker rand on local fuel prices.
Jameel Ahmad, global head of currency strategy and market research at forex broker FXTM said it was difficult to project how much more of a downside there could be on the cards for the oil markets if Opec confirmed an increase in production output.
Ahmad said West Texas Intermediate (WTI) – crude oil used as a benchmark in oil pricing – declined by nearly $10 (R136) in less than a month on the back of the speculation that Opec could decide to curtail output.
“It is important to point out that a primary factor behind the $10 decline in the value of oil over the past month has been due to reports that there could be an increase in production of around 500 000 barrels per day. Unless the outcome is confirmed at this exact level, I would say that the move is already priced in,” Ahmad said. “It would likely take a much larger increase in production than the reported levels to send the price of oil sharply lower than its current levels, between $63 and $64.”
Ahmad said the anticipation of a drastic shift in Opec’s mindset was puzzling given that the previous theme heading into Opec meetings was how much production output could be cut from the market. “This focus has suddenly been replaced with anxiety over how much supply could potentially be added back into the market,” he said.
He said the expected increase in oil output could be an indication of “a rebalancing” after years of an overwhelming oversupply or it could be a sign that some Opec members no longer wanted to be part of the oil grouping’s production cut deal.