Alexander Novak, Russian energy minister, said improved technology has helped to shorten investment cycles, but oil-price volatility has increased significantly, partly because of an Opec-wide strategy to pump at will since the end of 2014. A firmer dollar weighed on prices earlier in the day, as an expected hike in U.S. interest rates later this year drove the United States currency to a seven-month high against a basket of currencies.
With this glut in oil, many commentators are now asking if OPEC still matters.
However, sounding a note of caution, Fritsch said he had “significant doubts whether the (production cut targets) will actually be fulfilled” as rivalry between OPEC members, who are fighting aggressively for global markets share, could prevent an effective deal. Most in Saudi-led OPEC need higher prices to fix economic damage after crude fell to nearly $US26 a barrel this year from 2014 highs above $US100.
Should prices increase, all eyes will be on the U.S. oil shale markets.
OPEC agreed during its the 15th International Energy Forum Ministerial (IEF15) in Algiers to reduce its oil output to 32.5 million bpd from the current production levels of around 33.24 million bpd.
We’re heading in the right direction for an eventual cut, but still it’s very much up in the air.
But there is scepticism about the deal at two levels: Will the agreement be implemented in the first place, and if so, will it be effective?
“We remain skeptical over any significant rally in crude oil prices over the next six to 12 month horizon, as any print above $60 a barrel would be persuasive enough to lift USA shale oil production”, said Barnabas Gan, an economist at OCBC. It is just the market working exactly how it should do in theory…higher prices encourage production, which in turn drags the price back down again. Oil traders say it is too early to get excited and want to look at the details of the country-wise cuts.
The government’s statement following the dissolution focused on security concerns, but lower oil prices are also putting pressure on the country of 3.9 million people.
There’s also the question of whether any cut by OPEC will be made irrelevant by a potential increase in non-OPEC production.
Away from the oil market, precious metals remained in positive territory but failed to build any convincing momentum to the upside. “That is what has led to sustained lower prices and a new and necessary emphasis on competitiveness”. The next largest proved oil reserves are in Saudi Arabia with 268 billion barrels and Canada with 173 billion barrels.
Oil prices have risen the past three weeks despite brimming stockpiles.
“Although major oil producers may be commended on their ability to exploit oils sensitivity to create sharp boosts in prices, this could come at a heavy price if investors are left empty-handed”. If they do reach an agreement that would easily raise the prices to $60-70. We’re likely to experience some real ups and downs in price over the next several years.