When the Organization of Petroleum Exporting Countries (Opec) meets Friday in Vienna, the cartel will be celebrating a victory of sorts, one that has cost its members dearly.
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One of the key reasons why oil is cheap today is because of a decision made by the Saudi and other OPEC countries one year ago. Meanwhile economic and oil expert Bashir Aleyya said the drop in crude oil prices would cause deficit in the GCC states in the long term despite the huge financial reserve these countries have. Brent, the global benchmark, rose 93 cents, or 2.2%, to $43.42 a barrel on ICE Futures Europe.
The upshot is the meeting will likely decide to maintain the official OPEC level of 30 million barrels a day, urge members to cut back on overproduction and hope for better times next year.
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Oil market investors have expected OPEC to maintain its strategy of keeping output high in an attempt to defend market share. The Saudi proposal would also require Iran, Oman and Kazakhstan to participate, and Iraq to freeze output at current levels, or cut with the group, according to the Energy Intelligence report.
Early gains came after a report sourced to a senior OPEC delegate said Saudi Arabia would next year propose a deal to balance oil markets with non-OPEC help.
Saudi Arabia boosted output to a record 10.48 million barrels a day in June, according to the International Energy Agency, and pumped 10.33 million barrels daily last month, data compiled by Bloomberg show.
“It is our right and anyone can not limit us to do it. We will not accept anything in this regard”, Iranian oil minister Bijan Zangeneh told reporters in Vienna before the informal meeting. “Now there’s even more urgency within OPEC to slow production and it’s coming from its member nations that are struggling to keep their economies from going bankrupt”.
Persistent low prices into 2016 may make it harder for shale-oil producers to restart because of funding problems, even if prices rebound, Melek said. “If you’re Saudi Arabia, lower oil prices are the single strongest tool you have in economic war”.
Still, some market watchers are perplexed by the move as Indonesia is a net oil importer that would prefer lower energy prices.
That target may be raised slightly to accommodate the return of Indonesia, which produces about 900,000 barrels a day, but considering Opec has consistently overproduced, the target is relatively meaningless.
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With Iran’s ability to play a big role in the oil markets OPEC is pressured to specify production quota for each member country to face the increase in supply and reduce the negative impact on oil prices Gartner explained.
