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Indonesia’s return to OPEC and its implications for oil prices

Indonesia’s return to OPEC and its implications for oil prices

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Date: 4 December 2015 12:57

Baku, Azerbaijan, Dec. 4

By Aygun Badalova - Trend:

There is a strong case for OPEC to increase its current output target of 30 million barrels per day, perhaps to 31 million barrels per day, to accommodate the return of Indonesia to membership of the group, Julian Jessop Chief Global Economist at the British economic research and consulting company Capital Economics believes.

“As this would simply acknowledge the reclassification of Indonesian output from non-OPEC to OPEC production, it would not amount to an increase in overall global supply,” Jessop said in a report obtained by Trend.

During the 168th meeting on Dec. 4 in Vienna, the OPEC countries are expected to consider the official request by Indonesia to reactivate its full membership of the organization.

Indonesia became an OPEC member in 1962, before suspending its membership with effect from January 1, 2009. Its return to the organization would add almost 3 percent to the group's oil output.

However, if the target is left at 30 million barrels per day, oil prices might jump as this would imply that Indonesia’s contribution will have to be offset by reductions in production by other OPEC members, Jessop believes.

“That said, any lingering speculation of a cut from 30 million barrels per day is likely to be disappointed, as Saudi Arabia seems content to wait for lower non-OPEC supply and stronger demand to lift prices next year,” economist said.

OPEC last met this summer in Vienna, when it agreed to leave its production ceiling unchanged at 30 million barrels per day.

Oil prices have been experiencing dramatic fall since the middle of 2014. The position of Saudi Arabia, which is the largest producer and exporter within OPEC, has been an obstacle in cartel’s quota reduction.

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