As the September 26 to 28 “informal” meeting of OPEC producers in Algeria draws near, media speculation could easily cause mental anguish. On oil news websites simultaneous headlines claim OPEC will both fail and succeed in capping output. Called by OPEC August 8, the stated purpose of the gathering was, “OPEC continues to monitor developments closely, and is in constant deliberations with all member states on ways and means to help restore stability to the oil market”.
Obviously that is the view of the organization, not the member countries. Iran and Saudi Arabia remain at loggerheads over which will exert the most influence in the Persian Gulf. Iraq, Nigeria, Libya and Venezuela are all experiencing various forms of internal meltdown which thankfully (human suffering notwithstanding) is keeping a lot of oil off the market.
On September 20, OPEC Secretary-General, Mohammed Barkindo, was talking publicly about a one-year production freeze among OPEC members and Russia. Two days later it was reported the Saudis would cut output if Iran followed. We’ll see. In August, OPEC believed non-OPEC production would fall by 1 million b/d this year from 2015 and a bit more in 2017. Even the most pessimistic estimates for demand growth see 1.2 million b/d this year and next. But there is no consensus on these numbers.
At some point global supply/ demand curves will cross enough to cause prices to rise. Some data indicates they already have. With low oil prices causing massive cutbacks in spending on new supplies, everyone agrees oil prices are very unlikely to revisit recent record lows and will rise over time. The question is how much and when. The rest of this article is dedicated to the thesis that the market and the price are not the same thing so nobody actually knows. Despite relentless bad news this means something good could easily occur.
On September 14, Goldman Sachs Group Inc. analyst Jeff Currie opined there would be no price rally anytime soon. In a Bloomberg article Currie is quoted as saying the risk is “to the downside” in the absence of any major drivers to make prices rise. The result is that for the next year WTI will be stuck in the US$45 to US$50 range. Curry said, “It really looks similar to the period of the early 1990s, when we were at US$20 oil. Is US$45 to US$50 the new US$20? I am not ready to say we are in this new equilibrium environment, but it sure does feel that we’re moving in that direction”.
As happens every day when any news one way or another is released, oil markets responded and WTI moved. In this case it fell. Crude has been generally down for the past two weeks since WTI reached a recent high of US$47.83 on September 8, although it recovered somewhat on September 21 and 22 on U.S. inventory declines.
.Yahoo
