OPEC interests: market share over low price losses

OPEC interests: market share over low price losses
22:07 5 Dekabr 2015
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Baku, Azerbaijan, Dec. 5

By Aygun Badalova – Trend:

The OPEC (Organization of the Petroleum Exporting Countries) meeting in Vienna Dec.4 was another memorable event in the history of the cartel.

The decision of the OPEC adopted last year was called historic because, despite all the expectations and hopes for the assistance of the cartel to stabilize the falling oil prices, it didn’t reduce the level of its production, thus showing that the market share for some member states is more important than the losses from low prices.

At this time, no surprises from the meeting were expected - it was obvious that the cartel members weren’t going to change their strategy, that is, to save the oil prices. However, there was confidence that the oil production quota will officially rise in view of the accession of the new participant, Indonesia, to the organization.

But, nevertheless, the meeting wasn’t held without surprises. Following the meeting it was announced that in fact, the OPEC left oil production quotas unchanged. Why? The cartel has refused from an accurate assessment of its target oil production - no figures were disclosed in the communiqué issued after the meeting of the cartel. This was due to uncertainty with further oil production volumes in Iran.

There are two ways to explain the OPEC decision at the meeting Dec.4. Members of the cartel faced serious disagreements and couldn’t come to a common agreement regarding the quota. After all, there are serious victims of the policy carried out by the OPEC in the ranks of the cartel, in particular, Venezuela, which recently launched a number of initiatives on measures to stabilize oil prices.

Another option could be the OPEC's attempts to shirk responsibility for what is happening in the oil market. After all, any slightest increase of the official quota, be it even a decision of a technical character on the background of the new member’s accession to the organization, will lead to a further decline in the oil prices.

OPEC has previously called on non-OPEC countries to reduce the oil production, thereby showing reluctance to take certain measures by itself. Moreover, OPEC is confident that the oil prices will anyway stabilize without its interference.

Additionally, by verbally keeping the target level of oil production unchanged, OPEC didn’t specify the official figure, thereby trying to justify its failure to comply with the quota set by the organization itself.

OPEC’s production ceiling was set at 30 million barrels per day in 2011. However, as is known, in fact the countries produce a total of nearly 31.5 million barrels per day.

OPEC, founded over 50 years ago to maintain effective oil prices, today, in fact serves as a stand-alone business enterprise with its own interests, putting great pressure on the market.

This week, Saudi Arabia once again proposed the non-OPEC countries to cooperate on stabilizing the market. Saudi Arabia’s Oil Minister Ali bin Ibrahim Al-Naimi said that his country is ready to work with anyone who will help balance the market.

An important question arises: where will this cooperation reflect itself when Saudi Arabia doesn’t plan to reduce the production and proposes someone else to do that for the good of the market?

Currently, many analysts are confident that OPEC’s inaction increases the risks for further decline in oil prices.

Given that OPEC continues to pursue its oil production policy and that there are weak prospects for restoring the demand and supply balance, the oil prices are likely to drop in Q1 2016, according to the expectations of the US JP Morgan bank.

The bank analysts forecast that the average price for Brent oil will be $48 per barrel, while the WTI oil - $45 per barrel in Q1 2016.


Aygun Badalova is Trend Agency’s staff journalist, follow her on Twitter: @AygunBadalova

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