OPEC Poised to Keep Pumping Even as Global Oil Glut Persists
Vienna. Oil group Organization of Petroleum Exporting Countries is set on Friday to stick by its policy of unconstrained oil output for another six months, setting aside warnings of a second lurch lower in prices as some members like Iran look to ramp up exports.
By agreeing to maintain its existing output ceiling, the Organization of the Petroleum Exporting Countries will renew its support for the shock market treatment it doled out late last year, when Saudi Arabia, the world’s top exporter, said it would no longer cut production in order to keep prices high.
With oil prices having rebounded by more than a third after hitting a six-year low of $45 a barrel in January, officials meeting in Vienna see little reason to tinker with a strategy that seems to have resurrected moribund growth in world oil consumption and put a damper on the US shale boom.
“In the short term at least, this new policy is working,” analysts at Oxford Economics said.
Nor is OPEC eager to tackle the tricky questions set to arise in the coming months as members such as Iran and Libya prepare to reopen the taps after years of diminished production.
Iranian Oil Minister Bijan Zanganeh will press the group for assurances that other members will give it room to add as much as one million barrels per day (bpd) of supply once Western sanctions are eased, but seems unlikely to pick a fight now.
“I don’t think it’s going to be that sort of discussion,” one OPEC delegate told Reuters.
“When the production comes, this matter will settle itself,” the delegate said. That may not occur until 2016, according to many analysts who question how quickly Tehran will win relief from sanctions and be allowed to sell more crude.
Libya, still afflicted by a crippling civil war, hopes to double production to some 1 million bpd by September if key ports resume working, but past efforts have failed to deliver a sustained recovery in shipments.
There also appeared little interest in adjusting the group’s formal output ceiling of 30 million barrel per day (bpd) to reflect the new reality. Output has exceeded that limit for most of the past year, reaching 31.2 million bpd in May, its highest in three years, according to a Reuters survey.
“If they raised the output ceiling then prices would go down and we don’t want that,” said one Gulf OPEC delegate.
Oil prices are falling anyway as traders anticipate a rollover decision and see weakening market conditions, with US futures on track for their first weekly decline since March.
The US tight oil industry has been more resilient than many had expected, with falling costs helping sustain the revolution and possibly setting up another downward spiral.
“Balances show we are oversupplied and OPEC is in pedal-to-the-metal mode,” said Bob McNally of The Rapidan Group. He says global Brent crude could fall back to $50 a barrel.
Notably absent from this week’s agenda are efforts to push for output constraints ̶ even from hawks like Venezuela, which faces deepening budget woes at prices below $100 per barrel.
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