VIENNA: Opec faces a period of static oil prices as traders track supply-side uncertainties surrounding Iraq, Iran and Libya, as well as Ukraine, analysts said yesterday.
The oil exporters’ cartel opted this week to maintain its crude output ceiling, expressing confidence in the market despite global tensions keeping prices high.
Opec, which will convene again in late November to assess the state of the market, remains happy with Brent oil prices hovering close to $110, benefitting producers. “Long term we remain rangebound, $100 to $110 per barrel, which suits most Opec members, and with persistent upside risks amid ongoing supply jitters in the Middle East and North Africa region,” VTB Capital analyst Andrey Kryuchenkov said.
“Sustained gains are hard to justify past $110, with the global supply growth still outpacing demand at this point given a fairly weak European demand and an economic growth moderation in China” he added.
Some cartel members are meanwhile pumping more crude to compensate for supply shortfalls in Iran, Iraq and particularly Libya — which remains plagued by unrest. Libya has been rocked by violence that has slashed the North African nation’s output to less than 200,000 barrels per day, from a potential 1.5 million bpd. “There is little risk that Opec will lose control of the oil price to the downside the next six months,” said SEB analyst Bjarne Schieldrop.
“That Opec does not change its overall target or ceiling does not mean that Opec is not actively managing the market. Saudi Arabia is constantly managing its supply level to balance the market.”
The cartel’s 12 member nations left their collective oil production ceiling at 30 million barrels per day on Wednesday.
World oil prices meanwhile advanced above $110 as traders seized on a fresh outbreak of violence in Opec member Iraq. The nation’s provincial cities of Tikrit and Mosul have fallen to militants from jihadist group the Islamic State of Iraq and the Levant (ISIL).
Iraq’s Oil Minister Abdelkarim Al Luaybi played down the impact, telling reporters in Vienna that most of the nation’s crude production was in the south.
“We haven’t any production from the region. All our production is from the south area, and from Kirkuk,” Luaybi said Wednesday.
But spreading unrest in the south could spark an oil price spike, analysts argue.
“The situation in Iraq is concerning with Mosul taken over by ISIL,” added Schieldrop. “Increasing terror attacks in Iraq’s southern (city of) Basra would probably drive oil higher.”
Elsewhere, traders remain unsure how developments will pan out in Ukraine.
Investors fear a full-blown conflict because the ex-Soviet state is a conduit for a quarter of European gas imports from Russia.
“Flows of gas and oil have come under scrutiny since the beginning of March, and any significant drop in oil flows from Russia into Europe will push prices higher,” said Inenco analyst Gary Hornby.