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OPEC unable to affect oil prices for long time, expert says

20 April 2016 12:44 (UTC+04:00)
OPEC unable to affect oil prices for long time, expert says

OPEC has been unable to cope with its tasks for a long time, Mikhail Krutikhin, an analyst in the fuel-energy complex, partner of RusEnergy company believes.

The expert told Trend that OPEC has become a social club, which does not affect the oil prices at all.

"I have not been interested in OPEC for many years because it has lost the function of the cartel," Krutikhin said. "OPEC is unable to manipulate the volumes of production and export to maintain prices."

The analyst said there is no solidarity in OPEC, adding that each OPEC member-state has no separate quota for several years.

The analyst believes that nobody intends to comply with a total quota for the entire organization.

"This is a social club," the expert said. "The ministers gather to talk about their success in golf, Arabian horses and discuss other interesting topics. But as the cartel, OPEC has not been affecting the oil prices for a long time."

Krutikhin ruled out the possibility of establishing an organization of oil producers, an alternative to OPEC.

"The OPEC member-states' governments are able to regulate the volumes of oil production and export," the analyst said. "There is not such a possibility in two other major oil producers - the U.S. and Russia."

"The state organizations affect the volumes neither in the U.S. nor Russia," the expert said. "The certain companies affect the volumes. These companies pay no attention to the patriotic, political, geo-political calls of the leadership and do everything favorable for them."

Krutikhin went on to add that the OPEC countries and other oil producers will not be able to agree to freeze production level in the near future, just like they failed to do that during the meeting held on April 17 in Doha.

The meeting of oil producing countries in Doha on the oil production freeze on April 17 ended without reaching an agreement. In total, representatives of 17 countries took part in the meeting.

"There were speculations that the meeting might be a kind of 'verbal intervention' on the market in order to raise oil prices at least temporarily," the expert said. "But I think this is a wrong assumption, because the participants of the meeting didn't even sign any declaration."

The analyst added that the main purpose of the meeting was to attract Iran to the production freeze and thereby to prevent Iranian oil from entering the markets of the OPEC oil producer countries.

For Saudi Arabia, allowing Iran to enter new markets will be a geopolitical failure in the region, Krutikhin said, adding that no solidarity on the part of OPEC should be expected while Iran intends to occupy all the possible markets.

Krutikhin believes that one shouldn't expect the next regular OPEC meetings scheduled for June and October to be productive as well, because by that time Iran won't reach the figures of oil production and export planned by the country after the lifting of sanctions.

Therefore, it will be too early to speak about the possibility of Iran's joining the agreement on oil production freeze, he said.

The analyst said that the prevalence of supply over demand is being gradually reduced.

Krutikhin added that one can expect some stabilization of demand and supply on the oil market in the late third quarter-early fourth quarter of 2016.

"Supplies are growing, but not very fast," the analyst said. "First, Iran's new oil supply to the market is restrained. Some time is required for Iran to restore old fields. Two years are required for developing new fields."

"Saudi Arabia can accelerate oil production within several months and produce 12.5 million barrels of oil per day instead of 10-11 million barrels of oil per day," the analyst said. But Saudi Arabia does not intend to do it because it will be too much."

The analyst said that the oil market balance will depend on China's economy, its demand for oil, and the work of the U.S. companies, producing shale oil.

According to the April outlook of the U.S. Energy Information Administration (EIA), the global oil supplies are expected to reach 96.27 million barrels of oil per day in 2016.

According to EIA, the oil consumption in the world will hit 94.86 million barrels of oil per day in 2016.

While speaking about oil price forecasts, the analyst said that it is not worth waiting for the significant rise in oil prices at least for the next two years.

"One can expect that Brent oil price will increase up to $50 per barrel by late 2016," the analyst said. "As a result of such a small increase, I think the average level for 2016 will be within $45 per barrel."

Brent oil price hit $43.27 per barrel April 19.

OPEC includes 13 countries: Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

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