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OPEC’s Fight Club

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Groucho Marx didn’t want to belong to any club that would accept him as a member. Do OPEC countries ever feel the same?

The cartel meets on Wednesday for a special session, mostly so Venezuela can present its plan to establish and enforce a price band for oil of $70 to $100 a barrel. Venezuela is a founding member of OPEC, so certain courtesies must be extended for appearances’ sake. Yet one member in particular, which holds a certain level of influence, would be mad to actually embrace the plan.

Venezuela is a mess, “the weakest link in the oil supply chain” as energy economist Phil Verleger puts it. Foreign exchange reserves just hit a 12-year low of $15.3 billion, and the country has $4.5 billion of debt payments this month and next. Food shortages, looting and blackouts are stoking misery and tension ahead of December elections. Venezuela needs the extra cash flow higher oil prices would bring, and it needs it now.

Unless Saudi Arabia, OPEC’s de facto leader, is in a pitying mood, it won’t do anything to help. Yes, it has been burning through its own foreign exchange reserves. But as the chart below shows, it still has a lot of them. There’s some bad blood between Riyadh and Caracas anyway. Venezuela’s attempt to maximize its own production and take market share in the mid-1990s was one of the major causes of the 1998 price crash. It ultimately took concerted action on the part of OPEC and other producers outside the group to curb supply to support prices.

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After Year of Pain, OPEC Close to Halting U.S. Oil in Its Tracks

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The nation’s production is almost back down to the level pumped in November, when the Organization of Petroleum Exporting Countries switched its strategy to focus on battering competitors and reclaiming market share. As the U.S. wilts, demand for OPEC’s crude will grow in 2015, ending two years of retreat, the International Energy Agency estimates.

While cratering prices and historic cutbacks in drilling have taken their toll on the U.S., OPEC members have also paid a heavy price. A year of plunging government revenues, growing budget deficits and slumping currencies has left several members grappling with severe economic problems. The fact that the U.S. oil boom kept going for about six months after the group’s November decision also means OPEC has so far succeeded only in bringing the market back to where it started.

“It’s taken a hell of a long time and it will continue to take a long time — U.S. oil production has been more resilient than people thought,” said Mike Wittner, head of oil markets research at Societe Generale SA in London. “The bottom line is the re-balancing has begun.”

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Tehran Urges OPEC to Reduce Crude Output to Boost Prices

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Iranian Oil Minister Bijan Namdar Zanganeh says OPEC cartel members should cut crude output so prices can bounce back to $70-$80 per barrel. Iran intends to dramatically boost output in the coming months.

“No one is happy” with current oil prices at the current levels, Zanganeh told reporters in Tehran, Bloomberg reports.

“OPEC should decide to manage the market by reducing the level of production,” he said adding that the cartel is unlikely to cut output at its next meeting in December.

According to Roknoddin Javadi, managing director of state-run National Iranian Oil, the country can boost oil exports by 500,000 barrels per day (bpd) within a week after the sanctions are removed, and reach a level of 4.7 million bpd by 2021. In September, Iran produced 2.9 million bpd, according to OPEC.

Meanwhile, the cartel continues to exceed its own quota of 30 million bpd for the 16th consecutive month trying to protect its share in the world oil market. And OPEC’s most dominant member, Saudi Arabia, has been cutting prices to secure new markets.

According to OPEC’s October report, oil production within the organization increased by 0.11 million bpd to 31.57 million bpd in September.

OPEC will meet on December 4 in Vienna to announce its output strategy. Brent crude, a global benchmark, has slumped 42 percent over the last year trading below $50 per barrel on Monday.

In July, Iran and the six international mediators (the US, UK, France, Germany, Russia and China) signed a deal on settling the standoff over Iran’s nuclear program. Sanctions against Tehran are yet to be lifted, as the International Atomic Energy Agency has to confirm that Iran has met its obligations. Tehran says it’s cooperating with the nuclear watchdog.

Source: www.rt.com

Kemp: OPEC Has Stalled The Shale Revolution

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LONDON, Oct 20 (Reuters) – The resilience of U.S. shale producers has surpassed all expectations as they have wrung extra efficiencies out of their operations and pulled rigs back to the most prolific sections of existing plays.

The shale sector’s ability to cut costs and sustain their output in the face of plunging prices has been extraordinary and testament to the entrepreneurial spirit and technical skill of the independent producers.

Shale producers are justifiably proud of their ability to survive the perfect storm that has hit their industry since the middle of 2014.

But it should not disguise the fact that the collapse in oil prices has paused the shale revolution, with the sector’s focus shifting from growth to survival.

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