While much of America will be enjoying a traditional Thanksgiving weekend, a key meeting of OPEC oil producing countries will take place on November 27 in Vienna. But don’t expect Saudi Arabia to cut oil production, says a Sterne Agee report, predicting that the most traders should expect out of the meeting is that OPEC will adhere to its current 30 million per day barrel quota.
Oil production: Demand outpaced supply
A key trend during the 2010-2012 was that oil demand outpaced supply among non-OPEC producers. By 2013, demand and supply among non-OPEC producers had pulled to roughly even. During those days of generally stable prices in a high price range, OPEC was able to produce oil near maximum levels without weighing on prices to a significant degree. This is about to change, the report indicates.
Carlson Capital's Double Black Diamond fund added 3.09% net of fees in the second quarter of 2021. Following this performance, the fund delivered a profit of 5.3% net of fees for the first half. Q2 2021 hedge fund letters, conferences and more According to a copy of the fund's half-year update, which ValueWalk has been Read More
In 2014 lowered demand and increased supply, particularly from North America, which is projected to grow supply to the point where it could stop importing a significant amount of OPEC oil within 18 months, has led to dramatically lower prices. As a result, OPEC production levels are now becoming a renewed source of influence on the price of oil.
Sterne Agee will keep a close eye on what transpires at the meeting this weekend. While the IEA is focusing on a production increase of 1.64 million barrels per day – this versus demand growth of only 900,000 million barrels per day – the key to watch might be the trimming of this excess supply which could stabilize oil prices.
Saudi Arabia is resisting calls for reducing oil production
Coming into the meeting, however, OPEC appears to be un-unified. A Bloomberg report notes that Saudi Arabia is resisting calls for reductions in output sought by other countries, including Venezuela. Part of Saudi Arabia’s strategy relates to investment in non-OPEC production, what the Sterne Agee report refers to as “particularly prolific non-conventional oil plays.” As the price of oil drops, it also makes production in North American shale oil sands less profitable. Thus, by keeping oil at a depressed level, investment in such alternative oil production methods could dry up and would benefit the supply and demand equation over the long term.
Sterne Agee anticipates the current production levels to remain moving into a high demand season for oil and notes a degree of distrust among oil producers, known for breaking their production limit agreements. Such turmoil will, at best, result in a 30 million barrel per day quota. Overall for 2015, Sterne Agee thinks the WTI crude oil price will trend near the $80+ level throughout 2015.