Moscow has surprised the Organization of the Petroleum Exporting Countries by ramping up output to new record highs this year despite low oil prices, which OPEC had hoped would depress production from higher cost producers.
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OPEC member Iran last week said it would not negotiate with the cartel over a planned half million barrels per day oil production hike once sanctions are lifted.
Energy economist James Williams, of WTRG Economics, said the market was paring down some of the surge in prices resulting from Turkey’s shoot-down on Tuesday of a Russian warplane on the Syrian border.
OPEC heavyweight Saudi Arabia said last week it was ready to cooperate with other producers to stabilise the oil market and support prices. Last month, January-loading cargoes of light grades such as Murban and Das traded in premiums after Abu Dhabi National Oil Company cut supplies due to field maintenance.
Poorer members of OPEC such as Nigeria and Venezuela will continue to call for cuts in OPEC’s production target of 30 million barrels a day but not the affluent producers led by Saudi Arabia, which still produce at high levels despite low prices.
Given that, I, like other oil market watchers, expected little to happen at OPEC’s meeting June 5 but saw the cartel’s next gathering December 4 as likely to be much livelier.
Saudi oil minister and Opec kingpin Ali Naimi responded with platitudes about the kingdom’s willingness to “cooperate” with producers to “maintain market and price stability”, which failed to dent consensus expectations for Opec to stay the course.
Speculators’ net-long position in WTI fell by 24,311 contracts to 96,521 futures and options combined, the lowest since August, CFTC data show. Low prices risk future supply problems and while this could in turn boost prices, it is a risk for the industry.
All eyes will be on OPEC as it holds its meeting on Friday. Back then, OPEC’s production was roughly the same as it is now.
Saudi officials didnt respond to requests for comment. Even with that news, experts and analysts are expecting that the oil output of America will continue to drop, even though the drops are not very significant. That hasn’t stopped high levels of production bringing more supply to the market, which makes the assumption of higher demand a mute point going forward.
What was decidedly changing through the weeks was the U.S. dollar’s strength, as the market priced in a United States rate increase, which lent further downward pressure to oil prices.
Achieving that balance is hard, analysts say. The market will now be expecting crude oil stocks to decline through to the end of the year, in line with seasonal patterns. That means OPEC and USA crude oil production combined was about 38 million barrels of oil per day.
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Government data showed September output of USA crude falling by just 20,000 bpd to 9.326 million bpd in September. USA oil production has come down in 2015 as energy drillers pulled back amid the tumbling price of crude oil. “The scars from a sustained period of low oil prices can’t be easily erased”, cautioned Abdulaziz bin Salman al-Saud.
