How OPEC might surprise you

This week’s meeting of the Organisation of Petroleum Exporting Countries (OPEC) is widely expected to be newsworthy for the absence of news – but a few dissenting voices are arguing the cartel may have a surprise up its sleeve.

Abdalla Salem el-Badri, OPEC’s Secretary-General, said, “the world will need more energy in years to come” on Wednesday, a statement which spoke to the group’s increasing faith in a global economic recovery.

Earlier on Wednesday, Mohammed Saleh al-Sada, Qatar’s oil minister, said demand for crude oil was improving, and “there are a number of reasons to feel optimistic.”

The vast majority of analysts predict another case of the cartel sitting on its hands this week, maintaining current levels of oil production despite historically low oil prices.

The price has recently stabilized in the $60-65-a-barrel range, but even at this level – off year-to-date lows of around $45 a barrel – U.S. shale gas production starts to teeter on the edge of profitability.

Increasing exports from Saudi Arabia, Iraq and Angola have helped buoy supply in recent months – even though falls in the oil price in the last year should, in theory, have led to production cuts.

The group of the world’s biggest oil exporters could potentially move its output quota even higher than its current 30 million barrels a day, according to analysts at Morgan Stanley.

Actual OPEC output is already around 1 million barrels higher than its quota, according to a Reuters survey for May.

The market is “overzealous about a rapid U.S. production decline,” the Morgan Stanley analysts warned, pointing out that the weekly production figures which have caused many to believe that the shale boom production is peaking are not “accurate real time figures” – apart from Alaska.

If OPEC has not yet managed to deal the blow to U.S. shale production that some have accused it of trying to orchestrate, there are growing questions about why they would quit before they have finished.


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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