OPEC has three options on the table

27 Nov 2014
Calgary Herald
JAKE RUDNITSKY AND JAMES HERRON
BLOOMBERG
OPEC has three options on the table
Experts suggest potential outcomes of oil cartel’s meeting in Vienna
The oil market will “stabilize itself,” Ali Al-Naimi, oil minister for Saudi Arabia, the world’s largest crude exporter, said Wednesday.
The comment will keep people guessing before Thursday’s meeting of the Organization of Petroleum Exporting Countries in Vienna, said Harry Tchilinguirian, head of commodity markets at BNP Paribas SA.
Here are some potential outcomes: Production cut: OPEC may reduce its output ceiling by one million barrels a day or more, from 30 million currently, to shore up prices, Paul Horsnell, global head of commodities research at Standard Chartered, said in a report.
“We expect OPEC to try to agree a production-ceiling cut to 29 million barrels a day, perhaps below,” Horsnell said.
“This agreement could be complicated by the lack of current individual country quotas and Iraq’s long exemption from output targets.”
Prices have fallen into a bear market this year, with Brent crude losing 30 per cent from its June high.
“OPEC quota reductions have typically been successful in stabilizing and eventually pushing oil prices higher,” Deutsche Bank said in a report. Enforce existing target: “OPEC will confirm the 30 million barrel-perday ceiling and urge better compliance,” Carsten Fritsch an analyst at Commerzbank AG in Frankfurt, said by e-mail.
The 12-member group has exceeded its output ceiling in all but four of the 34 months since it was implemented, according to data compiled by Bloomberg. The group produced 974,000 barrels a day more than its target last month, the data show.
“To make a credible cut, OPEC will have to re-impose individual country quota restrictions” because it is easier for members to pump too much when there is only a collective target, Energy Aspects said in a note. “Even proposing country-level quotas would be hugely contentious.” Do nothing: “This is a much more bearish case,” Mike Wittner, head of oil market research at Societe Generale SA, said in a report. “We would enter a true production cost driven world, as opposed to a world driven by a Saudi price target that was chosen with their budgetary needs in mind.”
Prices would need to drop low enough to hurt U.S. shale oil production, or about $70 a barrel for Brent and $60 to $65 for West Texas Intermediate, he said.

About prosperitysaskatchewan

Consultant on Saskatchewan's natural resources.

Posted on November 27, 2014, in oil. Bookmark the permalink. Leave a comment.

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