OPEC unsurprisingly failed to agree on anything (*yawn*), despite market got very excited about a potential output ceiling. “Hope is a powerful weapon and no one power on earth can deprive you of.” – Nelson Mandela wrote in a letter to Winnie Mandela in 1969. But that’s what OPEC members and other non-OPEC oil producers could do – hope.
Actually, it’s not hard to predict why OPEC would do nothing in Vienna on Thursday. If they couldn’t even agree to either cut production or stop pumping more back in April in Doha, Qatar, when the oil price was at US$40 a barrel, what chances were there when the price hit US$50 a barrel before the meeting in Vienna yesterday?
The latest meeting in Vienna, Austria, was nothing more than an event for the OPEC members to let their hair down while socialising as if they were at Starbucks. It was a waste of taxpayers’ money. There was never a chance that OPEC would cut production. But there was very little need for OPEC to change their strategy to begin with.
Saudi Arabia’s new energy minister, Khalid al-Falih, said after the meeting – “We are extremely happy. I think the market is in good shape. The market is balancing. Trends are all good in terms of supply and demand. Prices have recovered somewhat, and I believe they will continue to recover.”
Iranian Oil Minister Bijan Zanganeh was similarly happy – “We had a very good meeting today. I believe that in this time it was a very good … unity between OPEC members … And I didn’t receive any resistance between OPEC member countries to do something against each other or to destabilize the market.”
Amusingly, both Saudi Arabia and Iran oil ministers were extremely happy after the meeting, despite unable to reach an agreement to set a ceiling for its production. The only thing achieved in the meeting was the naming Mohammed Barkindo of Nigeria as its new secretary-general. What a big deal!
Ironically, Saudi and Iran were at each other’s throats during the Doha meeting roughly 2 months ago when the oil price was at US$40 a barrel. Will we see them having pillow fight again if the crude oil were to go down to US$40 or even US$30 a barrel? Absolutely! In spite of a happier mood now, the fact remains that the price rally now is temporary.
OPEC knew the present rally is caused by production disruptions in Nigeria, Canada and Libya, among other places, as well as reduced drilling in the U.S. Such disruptions are costing 3 to 4 million barrels a day of supply. The latest data – U.S. crude supplies fell by 1.4 million barrels for the week ended May 27 – also helps oil rally.
Analysts expect some weakness in the third quarter after peak U.S. driving season and soon, oil will return to the market from disrupted areas. But will oil prices remain at the current level, or keep charging to US$60 a barrel? Well, there’s every possibility it could go up to US$60 but at this level, the U.S. shale drillers would be back to business – in great force.
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June 3rd, 2016 by financetwitter
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