After attending the 168th OPEC meeting in Vienna, John Hall, chairman at alfaenergy, shares his thoughts on what was discussed.
The Meeting today could have gone either way but, OPEC or rather Saudi Arabia, decided to continue maintaining market share at the prevailing price. There was a call to cut by 1.5mbpd but Saudi was not to be swayed by internal pressure. Instead OPEC has sent a defiant message to the market that it intends to protect its market share.
With output at around 31-32mbpd in November, it will take no further action but to monitor the market until the time of the next Meeting in June. It has brought Indonesia back into the membership and is mindful of the return to the market of Iran in the New Year. Over next year it is expecting demand for its oil to average 30.16mbpd, some way below its average production forecast of 30.8mbpd excluding Indonesia, which has until recently been classified as non-OPEC.
A “proposal” had been put forward supposedly to re-enforce quotas and reduce output by around 1mbpd while Iran is hoping to be allocated an increased quota for next year. This would need non-OPEC support but would not include the US as the US Constitution would not allow it to participate in any form of market manipulation. Being realistic, such a reduction would give psychological boost to the market.
With more oil on the way from different sources including Iran, Iraq and Libya within OPEC and the US and Canada from the outside, it would have lacked impact. In the short term, it had some credibility and gave speculators some respite as Brent dropped close to 42.50 on Wednesday and then back $44.50 today while the OPEC Basket Price fell yesterday $37.89. As news broke from this Meeting, the price of Brent was moving down towards $40. OPEC now will have to hold output at all cost.
Excellent news for consumers but bad news for all producers and explorers, particularly for Algeria, Iran, Iraq and Venezuela which are suffering financially, seriously, due to the low oil price. The Shale industry has hit OPEC hard by putting another 4.5mbpd into the market and although output has dropped slightly, the overall volume remains.
OPEC will need to maintain its strategy which will hurt the industry further but will it be enough in the longer term as the shale industry streamlines and adjusts itself to operating in a lower priced environment, ready to ramp up as prices rise? Furthermore, can OPEC adjust similarly?
The conference was opened by Dr. Emmanuel Ibe Kachikwu, Minister of State for Petroleum Resources of Nigeria and President of the OPEC Conference.
He reminded us that in the six months since the last Conference In June, we have witnessed continued volatility in the global oil market. Prices have continued to drop with the OPEC Reference Basket decreasing from a monthly average of around $60 per barrel in June to just over $41 per barrel in November.