Decision Week for OPEC: 30 million barrels or less?

OPEC ministers will meet in Vienna this week to decide on whether to stick to its target of 30 million per day or less. It is the second time they will meet since oil prices began to plummet last June, but it is looks likely as they may have nothing to do but stay the course on production from the cartel’s members.

The decision by OPEC at its last meeting in November to stick to its target of 30 million barrels a day appears to be working, despite fears among some OPEC producers that the move would only cut deeper into their oil-dependent revenue.

Growth in US shale oil, the primary competition for OPEC, is tapering off in the face of lower prices. Meanwhile, those prices, which fell to a six-year low in March, have recently rebounded. For Saudi Arabia, OPEC’s leading producer and decision maker, those are encouraging signs.

Few weeks to reach deal with Iran

The OPEC June 5 semi-annual meeting is coming just weeks before a June 30 deadline for the US and five other world powers to reach a deal with Iran over Teheran’s nuclear program. Should those talks succeed, US and European Union sanctions on Iran’s oil exports would begin to ease at some point, and the potential for more oil flooding the market and driving down prices again would increase. That would set the stage for an interesting meeting when OPEC ministers convene again in November.

This comes as OPEC oil supply surged to 31.2 million barrels a day in April, according to the International Energy Agency. That is not only well beyond OPEC’s current target, but also the highest output since September 2012.

Analysts, however, believe that a nuclear agreement alone is not likely to trigger big changes in oil prices soon. Iran’s exports, which have fallen from 2.5 million barrels a day in 2012, when the sanctions began to take effect, to 1.1 million barrels a day now, will need time to recover. Iran’s most immediate goal for oil exports is reaching that 2.5-million-barrel level again.

Oil glut may continue

OPEC sees an oil glut continuing until 2017, according to a copy of the cartel’s new long-term strategy. The wild card, as always with world oil markets, is the potential for a major disruption in the Middle East and North Africa, where civil wars rage in Iraq, Libya and Yemen, and tensions remain as high as ever between Iran and Saudi Arabia.

OPEC, which pumps 40 percent of the world’s crude, is seen sticking with its strategy of favoring market share over supporting prices, while US supply remains near a record. When Saudi Arabia argues this week that OPEC should keep up production to fight the rise in US shale oil levels, prices will be on its side.

Rebound vindicates OPEC strategy

Oil prices have recovered more than 40 percent from a six-year low in January as US production eases from the highest in more than four decades. The rebound will help vindicate the approach taken by Saudi Arabia as it steers OPEC to favor market share over prices in a bid to drive out high-cost producers.

At OPEC’s November 27 meeting, Saudi Arabia, the United Arab Emirates, Kuwait and Qatar rebuffed objections from the other eight members, in particular Iran, Venezuela and Algeria, to their plan. While there may be resistance at this week’s conference, it is likely that OPEC will maintain its daily production target of 30 million barrels, ratifying the Saudi strategy.

While the members who opposed OPEC’s November decision criticized it again early this year, the most recent comments from ministers signal the group will hold steady.

Venezuelan President Nicolas Maduro, who in January urged the group to consider supply cuts, said on May 23 only that he is working with OPEC to raise prices. Amid reduced oil revenues, Venezuela’s foreign currency reserves have plunged 26 percent in three months to less than $18 billion, the lowest level since 2003, according to central bank data as of May 13.

US drillers have idled more than half of the country’s oil rigs since October, according to data from Baker Hughes Inc. Global investment in oil production might fall by $100 billion this year, according to the International Energy Agency, which has curbed forecasts for non-OPEC supply growth to 830,000 barrels a day this year, down from a projection of 1.3 million a day in November.

FRANK UZUEGBUNAM