Oil traders should not lose too much sleep worrying about what OPEC, often unpredictable and quarrelsome in the past, will do when it meets next week.
The producer cartel, say delegates who attend meetings, is odds on to leave output policy unchanged. As a risk factor for oil markets, its May 31 gathering in Vienna barely features on traders’ radar.
A subtle shift may be taking place within OPEC as it heads into its most important meeting in years, according to delegates with the producer group, as the discussion over whether it needs to cut output to defend oil revenues quietly intensifies.
OPEC’s Secretary General Abudulla al-Badri this week urged markets not to panic over the drop in prices to a 4-year low near $81 a barrel, while Kuwait’s oil minister said OPEC was unlikely to cut output when it meets on Nov. 27 in Vienna.
OPEC said its production declined to the lowest level since June as bad weather disrupted supplies in Iraq and output weakened in Libya and Nigeria.
The Organization of Petroleum Exporting Countries pumped 30.022 million barrels a day last month, about 138,000 a day less than January, according to the 12-nation group’s monthly market report. It didn’t change forecasts for global oil demand and the amount of crude it will need to produce this year. Low prices may start to crimp U.S. shale output toward the end of the year, it said.
The last time that U.S. oil drillers got caught up in a price war orchestrated by Saudi Arabia, it ended badly for the Americans.
In 1986, the Saudis opened the spigot and sparked a four-month, 67% plunge that left oil just above $10 a barrel. The U.S. industry collapsed, triggering almost a quarter-century of production declines, and the Saudis regained their leading role in the world’s oil market.
OPEC’s likely decision to leave quotas unchanged next week belies the growing prospect of having to make the deepest oil-production cuts since 2009 as a global supply surge threatens to weaken prices.
The Organization of Petroleum Exporting Countries may need to lower output by 1 million barrels a day, or 3%, in the first half of next year, according to Societe Generale SA. Brent crude may drop 20% by June if the group doesn’t reduce the amount it pumps, the Centre for Global Energy Studies said.
Oil extended losses below $60 a barrel in New York and declined to a five-year low as the International Energy Agency cut its 2015 demand forecast for the fourth time in five months. Brent also dropped to the lowest in five years.
History may not repeat but it rhymes so loud sometimes that Einstein would be rolling in his repetitively insane grave. As Bloomberg notes, the last time that U.S. oil drillers got caught up in a price war orchestrated by Saudi Arabia, it ended badly for the Americans.
LONDON — There is no need to panic at the recent drop in oil prices, the secretary general of OPEC said on Wednesday, saying low prices would curb competing supplies and require the group to pump far more by the end of the decade.
Abdullah al-Badri said output of higher-cost oil supplies such as shale would be curbed if oil remained at around $85 a barrel, while the Organization of the Petroleum Exporting Countries enjoys lower costs and will see higher demand for its crude in the longer term.
Michael Johnston submits:The Organization of Petroleum Exporting Countries (OPEC) has seen its influence over the global energy market wane in recent years, as a prolonged economic downturn caused demand for oil to plummet, limiting the effectiveness of the group’s once eagerly-anticipated supply decisions.