Oil & Gas

Analysts predict stormy days ahead of OPEC June 2 meeting


June 1, 2016 | 11:19 am
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Ahead of the 169th meeting of the OPEC Conference in Vienna, Austria on June 2, analysts say unless key issues arising from failure to agree on production freeze and struggle by members to meet market share are addressed, the oil cartel may have a hard time validating its continued existence.

Two failed attempts at reaching oil freeze agreement have resulted in a glut in the world oil market supply, which kicked market prices south to about $30 in the first quarter 2016.

Saudi Arabia, Russia, Qatar and Venezuela resolved to keep oil production at January levels if other oil producers queue behind them. Iran insisted on getting to pre-sanction levels before it would even participate in talks.

“The market is eager to hear about a viable agreement between the OPEC producers and (non-OPEC) Russia to limit production,” said Ariel Cohen, a non-resident senior follow at the Global Energy Centre at the Atlantic Council.

In April, major oil producers again met in Doha, Qatar, with aspirations to freeze output at January levels until October 1 to gauge the effect on prices, but the talks broke down as Saudi Arabia refused to any production freeze that excludes Iran.

“The market really needs to freeze production in order to create a firm price floor and allow the oil price to gradually creep back upward,” said Justin Dargin, senior fellow at Oxford Institute for Energy Studies.

Since a larger market share is incompatible with production freeze, OPEC members continue to turn on the taps in a world the International Energy Association (IEA) says is saturated with oil.

According to the IEA, Iran raised daily output by 300,000 barrels a day to 3.56 million barrels a day in April, a level closer to pre-sanction era.

“Market share is market share and it is not in Saudi interest to make any meaningful concession on output that grants Tehran greater market share without significant concessions on other matters such as Syria and Yemen,” said Thomas O’Donnell, a global energy analyst and a fellow at the American Institute of Contemporary German Studies.

Meanwhile, Nigeria’s crude oil output fell 50 percent to 1.1 million barrels per day due to attacks on oil and gas infrastructure by militants in the Niger Delta.

The group has been blowing platforms and pipelines belonging to Shell, Agip, Chevron, and oil companies since February.

Analysts at CardinalStone Research say that a total of 959 vandalized points have been recorded between January and March 2016 (768 vandalized points in the corresponding period of 2015) and predicted a 36 percent loss to national revenues from N2.07trilloin to N1.32 trillion when loss levels were about 800,000 barrels per day.

Nigeria’s output has dropped to a 20-year low following these attacks and it is helping rebalance oil market in the world.

However oil prices that rallied to $50 per barrel on Friday dipped to $49 a barrel on Monday as Iraq raised its crude exports target ahead of the OPEC meeting even as Canadian production was set to restart after huge wildfires.

Brent crude futures were at $49.27 a barrel, down 5 cents, while U.S. West Texas Intermediate (WTI) crude futures were down 6 cents at $49.27.

Experts are divided over what the meeting will likely achieve.

“At least eight OPEC members favour a production cut, but those countries account for a bit less than half of the cartel’s output,” said James Williams, energy economist at WTRG Economics. “They would probably settle for a production ceiling.”

But O’Donnell said after the “market-diplomacy fiasco in Doha, it is not rational to expect any substantive change from OPEC in June.”



June 1, 2016 | 11:19 am
  |     |     |   Start Conversation

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