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Is OPEC Losing Influence?
Submitted by Nick Cunningham via OilPrice.com,
Oil prices underwent a wild ride in the lead up to the OPEC meeting in Vienna on December 4, and the markets gyrated as OPEC sent confusing signals on its intentions.
Early media reports suggested that OPEC had decided to raise its production ceiling from 30 million barrels per day (mb/d) to 31.5 mb/d. The reported move was seen as a nod to the inclusion of Indonesia into the group, bringing an additional 900,000 barrels per day of production. It also was seen as a decision to make a bit of room for Iran to bring some output back. Alternatively, raising the ceiling was interpreted as a recognition of reality, that is, that OPEC had been collectively exceeding its stated production target for quite some time.
Oil prices tanked by 3 percent on the news that OPEC would increase output, even though raising the production ceiling would not necessarily change supply dynamics. But the day grew more confusing when OPEC delayed its scheduled news conference and failed to confirm the news reports of a production increase.
At the press conference, OPEC’s President and Nigerian oil minister Emmanuel Ibe Kachikwu said that the group decided to leave production at their current levels. But in follow up questions from the press, he clarified that it would not be the 30 mb/d target that the group had agreed to up until now, but that OPEC agreed to leave actual production levels where they are – that is, somewhere near 31.3 mb/d, give or take a few hundred thousand barrels per day. In other words, the group is now officially not operating under a specific target – all bets are off. It is an unusual move not to operate under a specific targeted number, but OPEC said it would postpone a decision until the next meeting.
The decision is a recognition, on the one hand, that setting specific targets is pointless. All parties are going to do what is in their own interest. For nearly all members, that is producing as much oil as possible in order to make up lost revenue by moving higher volumes. OPEC is now just admitting as much, conceding that it will continue to produce well above the previous target.
The move to shed a production target is also a reflection of the fact that OPEC’s status is in flux. It is bringing Indonesia’s nearly 1 mb/d under its umbrella, but merely lifting the ceiling by 1 mb/d would be a tacit nod to a specific country production quota, something that the group got rid of several years ago. Similarly, Iran is about to bring 500,000 barrels per day of production back to the market, and likely more over the next half year or so, something that the OPEC President said was Iran’s “sovereign right” in his remarks to the press.
As such, OPEC apparently thought it would be useless to set a target right now, when countries are already exceeding that target, and in any event, the group’s collective production is expected to rise quite a bit over the next year.
OPEC left the door cracked on a meeting in January or February, after sanctions on Iran are lifted and the group can better assess market conditions. Similarly, OPEC’s President and Secretary-General issued some positive remarks on the possibility of coordinating with non-OPEC producers such as Russia. It is hard to imagine Russia, so devastated by low oil prices and little room to shoulder the pain of production cuts, would be willing to sign on to a cooperative arrangement. In fact, both Russia and Iran shot down the possibility of coordinated production cuts a few days ago when media rumors suggested that Saudi Arabia proposed a cut of 1 million barrels per day across OPEC and major non-OPEC producers.
Still, OPEC says that it could reconvene before its June meeting, perhaps hoping that it could make more headway with non-OPEC producers like Russia.
The confusing result from Vienna highlights a few key things.
First, while countless overzealous obituaries have been written about OPEC’s vanishing influence, OPEC is indeed acknowledging that it cannot influence prices to the degree that it once could. On December 3, The Wall Street Journal revealed the details of an unpublished internal OPEC document that admitted as much. The document said that oil prices would not rise by much in the near-term even if it decided to cut production, due to the high levels of storage around the world.
Second, the result at least shows that OPEC is going to see its current strategy through to its logical conclusion, to the chagrin of most of its members. Venezuela is facing a financial and political crisis because of the collapse of crude prices but Saudi Arabia is unwilling to reverse course. Since OPEC operates by consensus, nothing will change. OPEC will continue to produce flat out and fight for market share.
That means oil prices will not rebound in the short run. And they are not...
As mentioned, storage levels around the world continue to rise. The EIA’s weekly numbers showed another increase in crude inventories by 1.2 million barrels last week, now just a whisker off the 80-year high hit earlier this year.
With little prospect of a price rebound, more pain is in store for oil companies around the world. High-cost producers in U.S. shale will continue to be under the crushing weigh of low prices, and U.S. oil production, while having proven resilient to date, will get rolled back.
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Roll em'.
O P E C:" Oppressive Pedophile Eastern Cunts". There, fixed it for ya.
Darwinism in the oil fields? Something tells me the House of Saud is not going to like the outcome.
"OPEC is going to see its current strategy through to its logical conclusion, to the chagrin of most of its members"
You mean much to the chagrin of the shale oil 'miracle' narrative.
Russia ain't too happy either.
Russia and the USSA have other industry to carry them thru to oil slick patch, Saudi, Iran, Iraq and others not so much. Peeps in those countries will get restless and that usually means more blood will flow then oil. But the Progressives will see a silver lining in this. They will get some of the world population Control that they so desire.
OPEC hasn't got the discipline to do anything.
Rather than declare a policy change and jawbone the market lower, they should have just promised production cuts whilst continuing to produce at record levels.
These people have clearly learnt nothing from the Central Bankers who have been promising "lift off next year" since 2010.
A simple experiment. Let Russia drop a couple of Kalibrs on the main Suadi and Qatar tanker terminal pipeline runs. If the world carries on as normal, then we can conclude OPEC is of little use. There may be some downside, but I am prepared to risk it.
Yes, they are trying to crush U.S. shale oil.
This is a rhetorical question question right? Much akin to "are people losing CONfidence in the Fed"?
The word Nick is looking for is relevance. OPEC lost its influence a while back, maybe ten years ago. Maybe twenty.
Yes, one year ago when it did nothing. Now it's just produce until all producers have negative cash flow.
Higgins: It's simple economics. Today it's oil, right? In ten or fifteen years, food. Plutonium. Maybe even sooner. Now, what do you think the people are gonna want us to do then?
Joe Turner: Ask them?
Higgins: Not now - then! Ask 'em when they're running out. Ask 'em when there's no heat in their homes and they're cold. Ask 'em when their engines stop. Ask 'em when people who have never known hunger start going hungry. You wanna know something? They won't want us to ask 'em. They'll just want us to get it for 'em!
Damn I love cheap oil. I've been drag racing 3 weekends in a row now. It's like 1986 all over again for me.
NoDebt,
You are doing your part to maintain an economy based on waste. Thank you.
It's not wasted. It's consumed to provide me with fun.
Besides, when the whole world goes all Mad Max on you, you're gonna need a guy like me around who knows how to build you a Supercharged V8 Interceptor. The dingo is your responsibility, though.
the glut was caused by the fed and speculators. this is not opec's fault. why should they change at the whims of the money maggots who produce nothing of any value but just take, take, take? the old saudi king said 6 or 7 years ago that $75/bbl was fair. the speculators jacked it north of $100 and kept it there creating a false market signal. this is what happens when you let maggot speculators make all the decisions with zirped up fed jizz money.
Do you see what happens Larry?
They should cut because it is in their interest to cut, I have not seen one analysis on price of oil vs. production cuts and how that shakes out to the bottom line. You know why? Because it makes the whole fight for market share argument look fucking stupid. If you can sell oil for $80 at 29,500,000 barrels/day vs. 31,500,000 at $40 what's the better deal for you?
It worked to put that piece of shit Maduro in the shithouse though didnt it. Vlad, not so much. Which means State got the tangential win but not so the big one. Sacrificing the Shale bunch was just a sop to the radical enviro crowd. plus it helps prop up the consumer they hoped so making the fucker in chief, Dear Leader look good as he goes out in a blaze of glory. Which is why they will raise rates once or twice - to kill the political sound bite "yeah sure employment picked up and the markets looked good during your two terms, you had rates peggfed at ZERO the ENTIRE time". Now they will not be able to say that. Now it will take two sentences to explain what an economic douchebag these keynesians are. Unfortunately the time span for the attention of the average Murican last only long enough for one sentence.
I'll bet that US roughnecks are pissed though.
If they have DOD training and experience, then maybe a chartered Tour-of-Duty to KSA is in order?
Tell me about it. Been at the house since May. The high sure was high while it lasted.
The House of Saud has a vision.
Not beyond their cashew look-alike dicks.
I still think that this is a conspiracy against the USA ... and its working.
And the number one reason why it is working is that nobody inside the USA realizes that this is an attack.
Everyone is distracted by the side shows.
By the time the "too big to fail" banks begin realizing how much debt they are holding, in oil and gas exploration and production company debts, and land mortgages, and mineral rights mortgages, and pipeline expansion debts, and heavy machineery debts, and realize that they are not going to receive one more penny of what is owed to them,
it will be too late.....
Let it burn.
I still think that this is a conspiracy against the USA ... and its working...
oh it's a conspiracy against the usa alright. BY THE TBTF USA BANKS THEMSELVES.
Well there is a bunch of storage around the world because they didn't cut production when they should have. It's a very circular and dumb argument, the whole fight for market share. Pump more and more to get more market share so prices continue to go lower, meanwhile cutting your own throat. If you owned 10 houses and the housing market was down you wouldn't put all your houses on the market, not a great analogy but you get the point. If they just would have stayed at 30,000,000 barrels it would have made a big difference on price. They've been pumping intentionally to drive the price down, the market share line is bullshit.
It never had influence. A cartel can only work when it is backed by the coercive power of the state. Like the taxi cartel.
Seeing the top in USD has the obvious coorelation with Oil.
Oil bottom is soon upon us.
Kong also looking for JPY to take big inflows, as risk comes off.
http://www.forexkong.com
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Does Saudi Arabia do rig counts and inventory?
Why is that not news?
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V-V
cabal harlots born house of saud is sitting ona time bomb