The 12-nation Organization of the Petroleum Exporting countries began meeting Friday with prices of US benchmark crude up marginally but still just above $40, near the lows of the world economic crisis seven years ago.
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Dr Ibe Kachikwu, the President, Organisation of Petroleum Exporting Countries (OPEC), says the demand for OPEC crude is expected to rise by 1.2 million barrels per day in 2016.
Sources earlier told Reuters that OPEC chose to increase its collective output ceiling to 31.5 million barrels per day (bpd) from the previous 30 million bpd in a move that acknowledged that members are already pumping well in excess of the current ceiling. Instead, the organization’s decision is likely to push the price of oil further south by endorsing present output, which is more than 1.5 million barrels a day above the formal ceiling of 30 million barrels.
Iran and Saudi Arabia, erstwhile rivals and adversaries, appear to share common ground on rejecting please from fellow members such as Venezuela to cut production output.
Many poorer OPEC members have said the group s largest producer was effectively twisting their arms, prompting the Saudi oil minister, Ali al-Naimi, to say he would listen to everyone this time.
Despite many member countries plan to lower the production ceiling, Saudi Arabia has demanded reduction in Russia’s production as a prerequisite for decreasing its production, a request which Russian Federation would not concur with.
When asked if there would be a meeting before June 2 if prices continue to fall, Kachikwu said: “Yes, potentially yes”. An OPEC production cut wouldn’t get under way without Saudi Arabia’s leadership, but the Saudis are locked in a regional struggle for political influence with Iran, with both sides supporting opposing proxy forces in high-stakes wars in Syria and Yemen. “The higher quota reflects the realpolitik of accommodating Iran”. “At this rate of overproduction we will run out of onshore storage in the first quarter”, said Gary Ross, a veteran Opec watcher and the founder of PIRA think-tank.
Iran, which was once the second biggest oil producer in OPEC, has repeatedly stated that it is planning to increase its oil production by 500,000 barrels per day immediately after the sanctions are lifted, and by another 500,000 barrels per day within the following six months. But OPEC did not mention a ceiling in its official announcement. If prices recover sharply, it could revive some US shale production, displacing OPEC crude.
Ed Cowart, of Eagle Asset Management, points out that uncertainty over global supply was the “justification for $100-per-barrel oil a couple of years ago”.
Russian energy minister Alexander Novak said on Thursday OPEC should bring its production levels close to reality.
In examining the current status of the oil market, the Conference respected the input and ideas of all Member Countries to find ways and means to deal with the challenges they are facing in the global oil market today.
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That decision upended the oil the market and has seen prices slump by more than 40 per cent to levels last seen in the aftermath of the financial crisis.
