Opec is heading for a very tough meeting this week. In fact ‘tough’ is a modest way of putting it. The challenges before the organisation are so steep there are no clear answers to many questions. And what has triggered the current situation is what is euphemistically called the market forces. The energy sector has undergone such profound changes in the past few years that even experts have been taken by surprise, and energy being one sector where pundits seldom get it right, there is a sense of helplessness about the direction of the market.
Oil ministers from OPEC’s 12 countries are arriving in the Austrian capital Vienna ahead of Friday’s meeting, expected to be the most contentious in years. Though no controversial or significant decisions are expected from the meeting, it will analyse in detail the current market situation and will look at solutions. The meeting also comes at a time when non-Opec Russia and Opec member Iraq have steeply increased supplies and Iran is due to increase its deliveries if Western sanctions on the country are lifted next year, which is likely to happen.
Oil prices have more than halved to $45 per barrel from as much as $115 a barrel some 18 months ago. The main reason for the plunge has been the demand-supply situation. There is more oil flowing than the market needs, thus pushing down the prices. Opec’s capacity to intervene when the prices fall has been weakened with the entry of more players in the market. Opec used to cut output when the prices fell, but such cuts will not help stabilise the market now because the Opec share has gone down considerably. Any output reduction by Opec producers will only result in a loss of their market share rather than shore up prices, which is one reason why Opec heavyweights have been shying away from the decision.
Opec sources are saying more downward pressure on prices is likely if the United States raises its interest rates this month, helping the dollar to extend gains from its recent peaks. Oil prices come under pressure when dollar rises. There are also concerns about demand growth. Some members are questioning the OPEC secretariat’s upbeat demand growth outlook for next year of 1.25 million barrels per day. They say they the demand growth will in fact amount to just one million bpd. This is a big fall compared to previous years.
Despite the new constraints, Opec needs to regain its influence and take tough measures to stabilise the market. There is a need for better coordination between Opec and non-Opec countries. Higher prices are in the interest of all, including the consumer countries. Further price falls will be disastrous for producers, which will drag the global economy down.
Opec is heading for a very tough meeting this week. In fact ‘tough’ is a modest way of putting it. The challenges before the organisation are so steep there are no clear answers to many questions. And what has triggered the current situation is what is euphemistically called the market forces. The energy sector has undergone such profound changes in the past few years that even experts have been taken by surprise, and energy being one sector where pundits seldom get it right, there is a sense of helplessness about the direction of the market.
Oil ministers from OPEC’s 12 countries are arriving in the Austrian capital Vienna ahead of Friday’s meeting, expected to be the most contentious in years. Though no controversial or significant decisions are expected from the meeting, it will analyse in detail the current market situation and will look at solutions. The meeting also comes at a time when non-Opec Russia and Opec member Iraq have steeply increased supplies and Iran is due to increase its deliveries if Western sanctions on the country are lifted next year, which is likely to happen.
Oil prices have more than halved to $45 per barrel from as much as $115 a barrel some 18 months ago. The main reason for the plunge has been the demand-supply situation. There is more oil flowing than the market needs, thus pushing down the prices. Opec’s capacity to intervene when the prices fall has been weakened with the entry of more players in the market. Opec used to cut output when the prices fell, but such cuts will not help stabilise the market now because the Opec share has gone down considerably. Any output reduction by Opec producers will only result in a loss of their market share rather than shore up prices, which is one reason why Opec heavyweights have been shying away from the decision.
Opec sources are saying more downward pressure on prices is likely if the United States raises its interest rates this month, helping the dollar to extend gains from its recent peaks. Oil prices come under pressure when dollar rises. There are also concerns about demand growth. Some members are questioning the OPEC secretariat’s upbeat demand growth outlook for next year of 1.25 million barrels per day. They say they the demand growth will in fact amount to just one million bpd. This is a big fall compared to previous years.
Despite the new constraints, Opec needs to regain its influence and take tough measures to stabilise the market. There is a need for better coordination between Opec and non-Opec countries. Higher prices are in the interest of all, including the consumer countries. Further price falls will be disastrous for producers, which will drag the global economy down.
