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John Hall: An Overview of the 166th OPEC Meeting

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Saudi, in my view, is going it alone. It can afford to sell cheaply, and at a loss, to regain market share over the longer term. The US is not driving this agenda but it does support it, even though Shale development is already being curtailed. However, the increased pressure that the lower oil price is applying to Russia and Iran and even Venezuela, which regularly berates US policy while also looking to the US as its largest customer, is overall probably very acceptable to the US administration.

Within the US, the lower gasoline prices have had an impact domestically and traffic movement has built up. Retailers can now supposedly attribute an increase in profitability to lower gasoline prices and with the Obama administration under pressure, some good news like this is very welcome to voters.

For the oil producing countries and beyond, fuel subsidies are crippling them but, a lower price could be an opportunity to reduce those subsidies, in countries that are confident enough to do so, but, since the advent of the “Arab Spring”, most have been reluctant to take any such action. However, Indonesia and India are doing it while in the OECD sector opportunities for duty increases must be under consideration, unless an election is also on the horizon.

In my last report, after the June Meeting, I said that OPEC was happy with the oil price ranging between $105 and $110, although consumers would expect the price to be closer to the $80-90 range. That is what has happened. Is it simply short term or can we expect to see a resurgence in the New Year? My guess is that prices will take some time to recover upwards and perhaps OPEC will accept that a more realistic level will be some way below $100. For now, output will be retained at 30mbpd and each member will be expected to respect their agreed levels, but, if there is a sale to be had, they will take it even if it means overproducing!

Looking at production figures, these are difficult to follow precisely as accuracy cannot be guaranteed. One delegate actually told me some time ago that they had difficulty understanding figures from both secondary and direct sources which included fellow members! Taking those published from secondary sources until October, which appear more complete than those supplied directly, it would appear that market output has been maintained over the year to date and there has been no reduction in output. What we don’t know is if all oil produced has been sold or stored.


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