OPEC cold fact: analysts hope it ceases to exist

By: Aygun Badalova

OPEC will hold a meeting in Vienna on November 4. Despite some hopes, attention and importance which is being attached to that upcoming event, most of the analysts share the common view – nothing new will happen.

Allure of OPEC production deal is a mirage – that is the title of the report, published by the analysts of the US JP Morgan bank, where they said OPEC is unlikely to shift its strategy, though “several headlines have tempted market participants with the possibility for production cuts”.

Sam Barden, the director of Wimpole International, an energy market development company thinks that OPEC is a hang over from the 20th century which has lost its purpose, and in its current format and operation has no place in a 21st Century multi polar economy.

“I expect nothing new from OPEC meeting in December, with the exception that perhaps that OPEC might cease to exist all together. This would be a good result,” Barden told Trend.

The volatility in oil prices over the last few years has come from the financial markets, through Brent Futures, not from production adjustments of OPEC, Barden believes.

“It is clear, and has been for some time, that OPEC has little or no control over global oil prices. Production has remained steady for oil globally, and the notion that member countries can just turn the oil tap on or off like water is completely ridiculous,” he said.

“OPEC should be transformed into a collaborative technology sharing platform, which includes consumers and producers together to drive carbon fuel savings, rather than like some sort of adolescent school yard gang who tries to steal each others lunch boxes in the form of oil market share,” Barden added.

OPEC last met this summer in Vienna, when it agreed to leave its production ceiling unchanged at 30 million barrels per day. Saudi Arabia and other Gulf states pushed OPEC’s strategy shift last year to defend market share rather than cut output to support oil prices.

Amid the existing opinion that OPEC has lost its relevance, the cartel is going to welcome its new member Indonesia in December.

OPEC is likely to increase its official production ceiling with Indonesia’s expected return to the producer, media report said reffering to OPEC delegates.

An increase in the production target in order to make room for the return of Indonesia will be seen as a pure technical move with no market impact, according to Ole Hansen, Head of Commodity Strategy in Danish Saxo Bank.

“What the oil market will be trying to assess is how deep the discontent currently is within OPEC. We have just seen that the cartels long-term oil strategy which should have been presented at the December meeting being postponed until 2016,” he told Trend.

He said the governors disagreed on clauses suggested by some members, including about curtailing output, setting production quotas and finding ways to maximize OPEC profit.

While individual members of OPEC, both rich and poor, are suffering from current low prices, Hansen believes, the lack of signs that non-OPEC production is slowing will make it a very tough decision to change the current course.

“The OPEC basket price has fallen below $40 for the first time since 2009 and this development will undoubtedly add some additional pressure from individual members. I think they will only cut production when they see clear signs of a non-OPEC slowdown and this will probably not be seen before Q1,” Hansen said.

At the same time Hansen said he sees no cooperation between OPEC and non-OPEC countries – its every man for himself at the moment with those producers having the possibility of raising production to protect revenues doing just that.

Not least Russia who is producing at a post-Soviet record, according to Hansen.

“Russia’s output has steadily climbed through the year reflecting a vicious battle for market share, which has seen global producers ramp up production. The increase in supply has come despite a precipitous slide in the oil price from the plus $100 a barrel mark in the summer of 2014 to just above $40 a barrel today,” he said.


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