Hoping for an OPEC supply cut? Forget it

Any expectations that the Organization of the Petroleum Exporting Countries (OPEC) will cut its production quota next month took another dent Monday after analysts argued that the downside risks for the commodity’s price aren’t being fully realized.

Rokneddin Javadi, Iran’s deputy oil minister, told Reuters Monday that he didn’t think the cartel would curb its output at its next meeting which is due on June 5. In November the cartel decided not to cut its output, a move that sent the price of oil spiraling down from near $120 a barrel in June last year to lows of around $45 a barrel in January. OPEC, which produces 40 percent of the world’s crude oil, has been locked in a battle of nerves over supply and price with the rapidly growing U.S. shale industry.

Last week OPEC denied reports that it had drawn up recommendations that its members return to production quotas and that some other delegates had already spoken of the possibility that output would be maintained at 30 million barrels a day.

Iran – a member of the group of 12 oil-producing nations – could even be set to surprise oil traders with a major surge in production, according to David Hewitt, the co-head of global oil and gas equity research at Credit Suisse.

“At $66 to $67 (a barrel) for Brent we’re simply not pricing in the risk that Iran returns and increases its production in early July. That would have a significant downward effect,” he told CNBC Monday.

Iran’s Javadi also pointed to this move Monday, according to a Reuters report, saying that he hoped the country’s crude oil exports would return to pre-sanctions levels of 2.5 (million barrels per day) within three months. This comes as international negotiations seek to lift the tough penalties imposed on the country by major powers.

However, OPEC countries have actually marginally increased their production in recent months, according to market watchers. Kuwait, Saudi Arabia and the United Arab Emirates are raising their rig counts, and Iraq and Libya are continuing to increase production, the International Energy Agency (IEA) highlighted last week. Iranian supplies have also hit their highest since July 2012, it also added.


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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