“Our base case scenario still anticipates an increase in total OPEC production to 32 million barrels per day next year as sanctions on Iran are lifted”, said Tim Evans, a Citi Futures analyst.
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The overnight price decline is “a signal that market-watchers are increasingly expecting the cartel to at least stay its hand at a production quota of 30 million barrels a day”, OCBC said in a note. “We will not accept anything in this regard”, he said. That policy, an about-face from the group’s traditional role of restraining production to keep prices higher, has contributed to an oil glut, with inventories growing to record volumes. Such a cut would be conditional on the participation of non-OPEC producers including Russia, Mexico and Kazakhstan and wouldn’t be agreed on Friday, according to the report.
Pascal Menges, Portfolio Manager of LO Funds said: “Although there are many calls for a production cut, we think it is unlikely that Saudi Arabia will agree”.
Iran’s oil minister was quick to dismiss the possibility of limiting Tehran’s production ramp-up once Western sanctions are lifted.
They said they saw little chance of Saudi Arabia making a formal proposal for OPEC output cuts, contingent on joint action from non-OPEC, as reported by an industry newsletter.
Non-OPEC (Organization of the Petroleum Exporting Countries) crude oil supply could slow down in 2016 and 2017 due to slowing investments in oil and gas exploration projects, a result of lower oil prices.
“There is a lot of oil on the markets”.
On the other, the wealthy Gulf states of Saudi Arabia, Kuwait, Qatar and the United Arab Emirates have a $2 trillion cushion of sovereign wealth fund savings and are fighting to protect their market share.
“There can’t be any agreement because non-OPEC players won’t cut”, said Tamas Varga of brokerage PVM. Nevertheless, he said Iran will welcome any proposal to create a balance between supply and demand in the market.
The value of oil has plummeted from around 114 dollars per barrel in June previous year to 43.41 dollars on Thursday for Brent, a benchmark oil brand produced in the North Sea.
Jessop pointed out that there was in fact “a strong case for OPEC to increase its current output target… perhaps to 31 mbpd, to accommodate the return of Indonesia”. The market is vulnerable to short covering spikes if anything unexpected on OPEC comes out, if not the WTI will start trading below $40 a barrel.
Top crude exporter Saudi Arabia has resisted production cuts to support prices in an oversupplied market.
USA crude stockpiles increased by 1.18 million barrels to 489.4 million barrels in the week ended November 27, Energy Information Administration data showed Wednesday.
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A cheaper dollar is a positive for oil markets as it makes greenback-dominated contracts such as crude futures more affordable for those holding other currencies.
