OPEC’s
on again and off again affair with media and global headlines is
becoming common place as the 14-national oil exporting cartel, led by de
facto leader Saudi Arabia, issues various …
Saudi Arabia, Russia Play Oil Markets Game, But Nobody's Winning
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United Arab Emirates Energy Minister Suhail
bin Mohamed al-Mazroui arrives to attend a press conference during the
23rd World Energy Congress on October 12, 2016 in Istanbul. OPEC, led by
de facto leader Saudi Arabia, has issued an invitation to Russia and
other key non-members of the oil cartel to attend a meeting later this
month aimed at rebalancing crude prices after historic lows, the Qatari
energy minister said on October 12. AFP / OZAN KOSE /Getty Images
OPEC’s on again and off again affair with media and global headlines is becoming common place
as the 14-national oil exporting cartel, led by de facto leader Saudi
Arabia, issues various potential oil production freeze or cut
announcements with the obvious attempt to sway oil prices.
Even the group’s September 28 announcement
on the sidelines of an energy forum in Algiers that it would
tentatively agree on a production cut in November of up to 740,000
barrels per day (bpd) to a range of 32.5 million to 33.0 million bpd, drove oil prices (both global benchmark Brent and U.S.-benchmark West Texas Intermediate (WTI) to one year highs.Two days ago, Russia joined in with Vladimir Putin agreeing that a production cut was in order soon. Russia is currently the world’s top oil producer, with output of 11 million bpd, a post-Soviet high.
Of course, we’ve been here before, temporary oil price spikes on shaky disclosures that would do little to change market fundamentals and would do little to alleviate the monster in the room, historically high oil inventory levels. The Paris-based International Energy Agency (IEA) said recently that massive oil inventory overhang is what’s keeping the market under pressure.
It also remains to be seen if OPEC can agree to do much of anything other than agreeing to agree. In other words, what’s the likelihood that the cartel will ever reach the much-hyped, but marginal, production cut?
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In a note to clients, Citi’s New York-based head of global commodity research Edward Morse said there’s better than a 50% chance that meaningful cuts will be delivered, with Gulf producers curtailing output by 600,000 bpd and the Russians chipping in between 100,000 to 200,000 bpd.
According to Morse, the target output production level of 33 million bpd would cause supply shortages, stabilize oil prices well above $50, with prices then reaching the mid $60′s by the end of 2017.
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