After attending the 166th OPEC meeting in Vienna, John Hall, chairman at alfaenergy, shares his thoughts on what was discussed.
So, with relative oil price stability since 2011 until the last meeting in June of this year, OPEC today decided to ignore the dramatic fall in prices of around $30 per barrel and take no further action and allow the market to stabilise itself. Within minutes of the announcement, Brent dropped $5 to $71!
In the run up to the meeting conjecture raged as usual with claims of OPEC “keeping the market guessing” but the truth was, OPEC collectively didn’t know itself what it was going to do. Ironically, those countries that are suffering the most from the lower oil prices are not the ones with influence. They may have a voice in the market but when it comes to the raw decision making that is left to the unofficial leader, Saudi Arabia, supported by Kuwait, Qatar and UAE.
The internal argument to reduce output from the official level of 30mbpd to something less, possibly 29.5mbpd was strong particularly from countries like Iran and Venezuela. They tend to sit on the outside of OPEC, being the so called Hawks, and on the opposite side to Saudi and its followers who are more pro than anti West. Yet, overall, each OPEC producer has suffered due to lower oil prices and there is the bigger picture, which all will understand, but only Saudi will recognise and respond to. I spoke briefly to ministers from Angola, Algeria and Kuwait and each seemed relaxed and content with their sales volumes now transferring from West to East.
How is it, that with so much geo-political uncertainty in the supply sector, and with winter approaching, with even freezing temperatures in Florida and severe snow storms in the northern parts of the US, that oil prices have not responded? Geo-political tension not just in the Middle East but in Africa too and in Eastern Europe, where the Russia-Ukraine situation is rapidly deteriorating, we could have expected a more negative response. Since the last Meeting, hedge funds, not expecting this dramatic fall in oil prices have been offloading positions and fuelling the downward torrent further. Prices have been maintained for so long at $100+ that to fall now could seem unrealistic. Perhaps one has to accept that prices have been too high for too long?
Back in October 2009, as oil prices were making their way back up beyond $70, OPEC was concerned that, as prices moved towards $80, that the global recovery following the 2008 financial crisis would falter and OPEC would be blamed. However, it wasn’t sure what was driving the price up. Today, six years on, many countries within the OECD have not yet recovered, the financial crisis is still with them, demand for oil has not recovered and alternative fuel sources, primarily shale, have risen up and impacted on demand for oil and not just OPEC oil. The fear that the higher oil price would curtain recovery has happened and today we can argue that we are seeing price correction.
