Whether it is more posturing ahead of OPEC's June meeting is unclear but the message from 'sources', according to The Wall Street Journal is "OPEC won’t agree to go lower," with regard global market share (which has fallen from more than 50-% to just 32% currently). The cartel's latest strategy report forecasts oil prices won't reach $100 - “$100 is not in any of the scenarios,” in the next decade (and could drop below $40) with its most optimistic scenario $76 in 2025 (which only Qatar and Kuwait can cover expenditures with). “If they want to sustain the organization, they have no choice,” but to reintroduce production quotas, adding any concession by stronger members would be temporary.
A return to quotas?
As The Wall Street Journal reports,
The Organization of the Petroleum Exporting Countries doesn’t see oil prices consistently trading at $100 barrel again in the next decade, a pessimistic assessment that has the group considering the return of production limits to influence the market, according to a draft of the cartel’s latest strategy report.
The report, seen by The Wall Street Journal, predicts that oil prices will be about $76 a barrel in 2025 in its most optimistic scenario, a reflection of OPEC worries that American competitors will be able to cope with low prices and keep pumping out supplies. It also contemplates situations where crude oil costs below $40 a barrel in 2025.
“$100 is not in any of the scenarios,” said a delegate at the OPEC strategy presentation last week in Vienna.
The price crash, and OPEC’s inability to stop it, is of paramount concern in oil-producing nations that need petroleum cash to balance their budgets. Only two OPEC members - Qatar and Kuwait - can cover their planned government expenditures at $76 a barrel, according to data from the International Monetary Fund. Most members require prices to be well above $100 a barrel; Algeria needs them to be over $130, according to the IMF.
The report recommends that OPEC return to a production quota system that it largely abandoned in 2011 after fights over how much each country would get to produce. OPEC members have been reluctant to agree to limits because it restricts their ability to attract new business and most ignored their quota.
Now, the likes of Saudi Arabia and Iraq are pumping record levels of crude in a bid to keep or gain market share.
The production quotas scenario under consideration would allow the poorest members of OPEC to produce more. Though the report doesn’t mention any particular country, such a policy could make such members as Algeria and Venezuela more agreeable.
“If they want to sustain the organization, they have no choice,” the official said, adding any concession by stronger members would be temporary.
Under the draft OPEC strategy report’s recommendations, the quotas could kick in if OPEC’s share of the global market fell below its current level of 32%, officials said. The group once produced more than half the world’s oil.
“At one point, OPEC won’t agree to go lower,” one OPEC official said.
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Still we are sure, the financialization of the oil markets, amid as Barclays notes - the huge disconnect between physical and futures markets - will keep the 28x dream a live a little longer for US energy stocks... even as Einhorn slays the Shale beast. Remember, The Saudis are fighting The Fed here and its mal-investment enabling free-money train.