OPEC seen heading for another oil output ceiling rollover
May 18, 2015 -- By Margaret McQuaile in London
OPEC's June 5 is fast approaching and all the signs seem to be pointing to yet another rollover of current oil output policy.
Brent crude is currently trading in the mid-$60s per barrel -- still well below the $115/b traded in mid-June last year before prices started to plunge but $20 more than the $45.19/b low of mid-January this year.
In the United States, shale oil production is expected to decline in both May and June, suggesting that the market share strategy pushed by OPEC kingpin Saudi Arabia is beginning to show results.
But, as the saying goes, two swallows don't make a summer. And, indeed, the International Energy Agency said last week that it would be premature to suggest that OPEC had won the battle for market share. In fact, the agency said, the battle has just begun.
Analysis continues below...
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The upcoming meeting in Vienna will bring the group together for the first time since November 27 last year, when ministers decided to maintain crude output at the official 30 million b/d ceiling despite plunging crude prices.
There had been hopes just ahead of that meeting that talks in the Austrian capital between OPEC members Saudi Arabia and Venezuela and non-OPEC Russia and Mexico would produce an agreement on output curbs. But Russia said it was unable to cut production.
Saudi Arabia, supported by fellow Gulf members Kuwait, the UAE and Qatar, then persuaded OPEC to roll over yet again the ceiling that has been in place since January 2012, arguing that cutting production in hopes of supporting prices would merely cede market share to rising output from non-OPEC producers.
But it's not just a question of non-OPEC supply when it comes to sharing out the oil market cake.
The June 5 meeting takes place just weeks before the June 30 deadline for a final nuclear agreement between Iran and six world powers that would lead to sanctions on Tehran being lifted and the eventual return of more than 1 million b/d of Iranian crude to world markets.
The pace at which sanctions will be removed in the event of a nuclear pact has yet to be agreed.
Iran has made clear its determination to recover its lost share of world markets and, according to oil minister Bijan Zanganeh earlier this month, will begin to increase production within ten days of sanctions being lifted.
And Asia, the engine of world oil demand growth, will be the focus of Tehran's marketing efforts.
The US Energy Information Administration, which expects Brent crude to average $61/barrel this year and $70/b in 2016, said last week that additional flows of Iranian oil onto world markets could result in oil prices being between $5 and $15/barrel lower than the forecast levels.
Saudi production, meanwhile, has been climbing -- from 9.64 million b/d in February to record levels of 10.3 million b/d in both March and April, according to official data provided by Riyadh to OPEC.
OPEC's overall production has also climbed -- from 30.1 million b/d in November last year to 30.84 million b/d in April, according to OPEC's own estimates which are derived from secondary sources.
The April figure is well above the 29.32 million b/d OPEC expects as the average call on its crude plus movements in and out of stocks this year.
It's also higher than the roughly 30.5 million b/d of demand forecast for the second half of the year.
The April total is also significantly higher than the group's official 30 million b/d ceiling.
Saudi oil minister Ali Naimi has said the kingdom is willing to work with other major oil producing and exporting countries to stabilize oil markets and boost prices but has insisted that Saudi Arabia, its Gulf neighbors and OPEC will not bear the burden of stabilizing markets alone.
That message was reiterated last week by a Gulf source, who said OPEC would "definitely not do [any] cutting alone."
He said some OPEC member countries had been working on contacts with several independent producers, including Russia, Kazakhstan and Oman, but that it was not clear whether their efforts would result in anything definitive in terms of managing production.
Officials from a number of non-OPEC producing countries will attend OPEC's international seminar in Vienna on June 3 and 4, just ahead of the ministerial conference, which could provide opportunities for talks between the two sides, he said.
However, he stressed, such talks "will take place only if there's a result" from the contacts currently under way.
OPEC still divided even as Saudis see markets settling