Cheap oil that could get even cheaper: That’s the challenge OPEC ministers face as they try to cut their losses at a time when supply is outstripping demand.
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Beijing will add 70 million-90 million barrels of crude to storage tanks in 2016 to build up its strategic petroleum reserves (SPR), according to most respondents in a poll of five analysts and data collected by Reuters analysts.
Either way, the latest developments do nothing to solve the massive supply glut weighing on prices. Iraqi oil minister Adel Abdel Mahdi said his country would further raise output next year after having steeply increased production in 2015.
WTI crude oil prices plummeted below $40 per barrel on Friday as OPEC has agreed to stick to its policy of flooding the global market with oil in an attempt to maintain and re-gain market share.
Saudi Arabia had hinted at cuts in output – but only if OPEC and non-OPEC members followed suit.
“We chose to postpone this decision to the next OPEC meeting until the picture becomes more clear for us to decide on a number”, OPEC Secretary-General Abdullah al-Badri said during the press conference in Vienna after members held discussions behind closed doors for more than seven hours.
A recent surge in US production of shale oil has provided more competition for OPEC producers.
“The cartel is basically broken”, said Matthew Smith, director of commodity research at ClipperData, which tracks global crude shipments. The long-term strategy, launched a year ago, has yet to yield real dividends as US output remains near all-time highs, though some cracks have emerged. “Americans don’t have any ceiling, Russians don’t have any ceiling, why should OPEC have a ceiling?”
On the output and Iran situations Johnson said: “Co-operation among Opec members is critical”.
In fairness to Iran, it has only recently started ramping up oil production after a long interregnum, and the country’s oil minister, Bijan Zangeneh, said before this week’s OPEC meeting that it would review its production policy once it is up to full speed, subject to Western sanctions on the country being lifted next year.
Oh: and bad news for us peak oil folks.
“The world dynamics have changed”.
The announcement was made by OPEC’s president, Emmanuel Ibe Kachikwu, following a meeting of the organizations member states in the Austrian city of Vienna on Friday.
It’s also important to remember the politics at play.
Worldwide oil traders say rising stockpiles will continue to weigh on the oil market and prices may not rally in the next two years.
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Senior oil official Amir Hossein Zamaninia said last week Iran hopes to bring an extra 500,000 barrels on the market by early next year.
