Looking ahead to this week’s OPEC meeting

It is a cautious week as Organization of the Petroleum Exporting Countries (OPEC) members, other oil producers outside the cartel and investors look ahead to this week’s all-important policy setting meeting OPEC meeting where ministers from the oil producing group will set policy in the face of a market still in glut.

Oil prices are heading for declines of as much as 10 percent this month as optimistic assessments that the overhang in the market would ease have proved wrong. US crude was up 18 cents at $41.88 a barrel early after falling more than 3 percent. The contract is heading for a 10 percent fall in November.

Brent crude was up 4 cents at $44.90 a barrel following a decline of 1.3 percent. The global benchmark is on track for a 9.4 percent decline this month.

While OPEC is expected to stick to high output levels to defend market share, traders and investors are wary of recent comments by top crude exporter Saudi Arabia that it was open to working on price support measures with other oil producers.

Few surprises expected

OPEC watchers expect the oil producer group to do anything other than rubber-stamp current output policy. Analysts forecast that OPEC will stick with its strategy of defending market share by maintaining output and driving down higher-cost production elsewhere.

Thus, it is expected that OPEC will keep pumping oil vigorously despite the resulting financial strain alarming weaker members who fear prices may slump further towards $20. Policy reversal will not be possible unless large producers outside the exporters’ group, notably Russia, were to join coordinated output cuts. Leading non-OPEC producer Russia has mooted a possible meeting of OPEC and non-OPEC experts on December 3 in Vienna, on the eve of the OPEC conference, and energy minister Alexander Novak has said that if there’s a need for ministerial talks, Russia is ready to participate. The chances of it helping to halt the price slide remain slim.

The collapse in prices has partly achieved OPEC’s goals. It has boosted global demand and curbed growth in supplies of US shale oil, which is relatively expensive to produce. Non-OPEC supply is also expected to fall for the first time in almost a decade next year as struggling producers cut back on capital spending.

Oil prices may drop to as low as the mid-$20s a barrel unless OPEC takes action to stabilize the market, Eulogio Del Pino, Venezuelan Oil Minister said recently. The Latin American nation and Algeria are among OPEC states most affected by crude’s slump and have long urged fellow members to curb output.

Likely winners

Big oil buyers in Asia are already tipping themselves to emerge as winners. Iran has said it will boost production by 500,000 barrels a day. That may further lift OPEC’s output, which has exceeded its target for 17 months once sanctions. Iranian Oil Minister Bijan Namdar Zanganeh has called on other member states to pare output to accommodate its return, and insists the country will restore production regardless of the impact on prices.

The increase in volumes would exacerbate a global glut and benefit the biggest oil- consuming region’s refiners, which are seeking cheaper sources of crude. Refining margins in Asia have stayed very strong, certainly much stronger than in 2014, largely because feedstock prices have dropped significantly.

OPEC has exceeded its output target of 30 million barrels a day since June 2014 as it pumps near record amounts of crude, boosted by increases from its biggest members, Saudi Arabia and Iraq. The group’s strategy to defend market share has helped lift refining margins for Asian processors, who have been treated to a steady flow of cheap cargoes from the Middle East to Mexico, Nigeria and Russia.

The Asia-Pacific region will consume 31.87 million barrels a day of oil in 2015, exceeding demand of 31.28 million barrels from the Americas, the International Energy Agency said in a recent report. China, India, Japan and South Korea will be among the biggest users of oil, according to the Paris-based IEA.

FRANK UZUEGBUNAM