OPEC To Keep Crude Oil Output High

OPEC To Keep Crude Oil Output High

$OIL

OPEC ministers meet in Vienna on 4 December to decide on production policy

Saudi Arabia and the other big Middle East Crud Oil producers in the OPEC (Organization of the Petroleum Exporting Countries) will keep pumping up to build market share despite mounting over-supply that has brought prices to 6-year lows, the world’s top traders say. senior executives from Vitol, Trafigura and the other big commodities houses said.

“I’m expecting OPEC to be quite consistent in this position,” Trafigura CFO Christophe Salmon said at the Reuters Commodities Summit.

OPEC ministers meet in Vienna on 4 Decembe to decide production policy and are likely to see sharp disagreements between rich Gulf countries with low production costs and poorer members such as Venezuela that need higher prices to meet their budgets.

Caracas has proposed that the cartel, source of more than 33% of the world’s Crude Oil, adopt a price band with a floor around 70 bbl and has suggested OPEC and non-OPEC producers cooperate to support prices.

Venezuela, Nigeria, Algeria and several other OPEC members need oil prices well over 100 bbl to cover their costs, 2X the current crude price below 50.

But core OPEC members in the Middle East have much lower costs and are more worried about losing market share to shale Oil producers in the North America. They hope lower prices will squeeze out their competition and boost prices in the long term.

“There is bound to be a huge amount of pressure on the Saudis from 1 or 2 people at that meeting to look at this policy again,” said Ian Taylor, CEO of Vitol, which traded more than 2-B bbl of Crude Oil last year.

“I cannot believe they will want to change their strategy at this moment in time, but you can’t rule it out totally … I never like to pre-judge an OPEC meeting. You do that at your peril,” he said, adding: “Do I expect a change? Probably not.”

The group is unlikely to cut production any time soon.

Marco Dunand, CEO of trading house Mercuria said OPEC had decided to let prices see their own level: “The way they’re looking at it, they’re saying in the longer term, you better let the market rule the price.

“That is their new philosophy,” he added: “The price is curing the problem.”

The trading companies also think that OPEC can probably manage to make some space for Iran, which looks set to increase output early next year after sanctions, imposed over its nuclear program, are lifted.

Tehran says it can raise output by 500,000 BPD in the 1st week after sanctions are lifted.

Iran may be optimistic but traders say it will certainly accelerate Crude Oil sales rapidly once foreign investment is allowed to return. Sanctions halved Iran’s Crude Oil exports to around 1.1-M BPD from a pre-2012 level of 2.5-M BPD.

And it is likely to cap Crude Oil prices, that Mr. Taylor said would struggle to trade above 60 bbl next year.

Mr. Salmon at Trafigura said Iran would need very high levels of capital expenditure in order to boost production and Crude Oil markets already reflected expectations of higher Iranian supply.

“I think the market has already factored in the likely increase into the price,” Mr. Salmon said.

We wait to see…

Have a terrific weekend.

HeffX-LTN

Paul Ebeling

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