OPEC meeting: expectations and further prices perspectives
By Aygun Badalova
Oil prices on the world markets continue to fall on the
threshold of OPEC meeting and after the failure of four oil
producing countries to reach an agreement over the output cut.
West Texas Intermediate (WTI) for January delivery dropped by 2.3
percent to $74.07 per barrel, while Brent, which is the benchmark
price for products in Europe and Asia, downed by $1.58 to $78.4 per
barrel.
Yesterday the representatives of Saudi Arabia, Russia, Mexico and
Venezuela held four-way talks in Vienna, where they agreed to
coordinate their actions on the oil markets and to meet once again
after three months. However, they failed to reach a general
agreement on the cut of output.
Analysts are very sceptic about the possibilities for OPEC members
to reach such kind of agreement on the meeting which will be held
on November 27.
“OPEC is unlikely to cut its output target by a meaningful amount
at its next meeting,” analysts of the British economic research and
consulting company Capital Economics believe.
“The next meeting of OPEC should be the most interesting since the
change from individual quotas to a group target in early 2012,”
analysts said in a report, obtained by Trend.
“The recent drop in prices has prompted the question of how OPEC
might respond. OPEC is, of course, a very diverse group. Some
members, notably Venezuela and Iran, would probably be happy to
sell as much of their oil as possible at any price. But the rest,
led by Saudi Arabia and the other wealthy Gulf Cooperation Council
countries, can afford to take a longer view,” the report said.
Analysts also believe that the richer members of the cartel may
even see a period of lower oil prices as potentially working in
their favour over the longer term, given the boost it should
provide to the global economy and hence to demand.
Capital Economics’ analysts believe that even if the cartel did
decide it was in its interests to cut output, cohesion within the
group is much weaker than it has been previously. Moreover,
compliance with the OPEC target is likely to remain poor, they
said.
Indeed, the cartel is currently producing around 31 million barrels
per day, compared to its target of 30 million barrels per day.
“While it may be in the interests of the group as a whole to cap
output and support prices, each individual member has an obvious
incentive to sell as much oil as possible. In addition, it is not
clear that there is a mechanism that OPEC can use to cut oil
production, given the lack of agreement amongst members of the
cartel,” analysts said.
“The upshot is that OPEC’s output target appears to act as a floor
on production rather than a ceiling,” analysts added.
As a result, British analysts believe that OPEC will not be able to
prevent the price of a barrel of Brent from falling to $70 by the
end of 2016.
Analysts from US JP Morgan bank believe that barring some
unexpected development in production that could come from Russian
or Mexican participation in a broader production restriction
arrangement, OPEC will need to cut output.
Inaction by OPEC would require an adjustment by non-OPEC producers
– something that would likely require prices to move materially
lower, according to the analysts.
“Given their potentially different objectives and the contrasting
statements from OPEC member countries, we remain concerned that
member countries will be unable to reach an agreement on how to
implement these adjustments to supply,” analysts said.
Overall, analysts believe that 2015 is set to be the third
consecutive year that oil demand growth is eclipsed by strong
non-OPEC supply growth, and at the same time volumes required from
OPEC to balance the market are expected to decline.
“These factors, in combination with uncertainty over the outcome of
OPEC’s meeting on November 27, underpin a 2015 Brent price forecast
of $82 a barrel, alongside a 2016 forecast of $87.75 a barrel,”
analysts said.
WTI average price is forecast at $77.25 a barrel in 2015 and $80.75
a barrel in 2016.