Oil prices are flirting with their lowest levels since the financial crisis as markets prepare for what is expected to be an unproductive semiannual OPEC meeting in Vienna on Friday. Analysts believe Saudi Arabia will ignore the calls of some of the cartel’s more cash-strapped members like Algeria and Venezuela to cut production, and instead stay the course in the hopes of squeezing out non-OPEC producers in a highly competitive and heavily oversupplied market. The FT reports:
“It appears highly unlikely that Opec will agree on a change of its course on Friday, as not all targets have been accomplished and uncertainty concerning non-OPEC supply effects prevails,” said analysts at JBC Energy in Vienna.
Brent crude oil, the international benchmark, fell 1.25 per cent to $43.89 a barrel on Wednesday, not far above the six-year low of $42.23 a barrel hit in August. US crude oil benchmark West Texas Intermediate fell 1 per cent to $41.40.
The group is expected to either roll over its 30m barrel a day output target — which it has pumped well above for 18 months — or to raise it by around 1m b/d to accommodate the readmittance of Indonesia to the cartel. Neither outcome should alter the amount of crude its members actually produce…Iraq and Saudi Arabia have increased output close to record levels, while Iran is gearing up to increase its exports when sanctions are lifted next year.
But even as the Saudis continue pumping oil as if there was solid demand for their product, and Iran prepares its own crude resurgence, non-OPEC producers are also doing their part in flooding the market. Russia’s oil production is nearing post-Soviet records. This November’s output was up 1.3 percent over last year’s, and according to one Russian oil analyst December could “finish the year with another high.” Upstart U.S. shale producers are employing a range of innovative new techniques that are staving off the sorts of production drops for which Riyadh might have hoped.
Virtually every big player in the global oil market seems hell-bent on fighting tooth and nail for its market share. The result is a massive glut and the bargain prices consumers are now enjoying. If we’re reading the signs right, OPEC has no intention of shifting course later this week, and that means cheap crude isn’t going anywhere.