EMEA News
Bunker Prices to Stay Under Pressure: Opportunity to Cut Crude Production has been Missed
While member and non-member countries have been urging the Organization of the Petroleum Exporting Countries (OPEC) to reconsider its production strategy in order to rebalance the global oil market, analysts say it's too late for the cartel to do any good.
A new Goldman Sachs report argues that any reduction strategy undertaken by OPEC would be undermined by the time necessary to enact cuts, the continued large builds in global inventories, and the speed with which U.S. Gulf Coast spare storage capacity is filling.
It states, "it may already be too late for OPEC producers to be able to prevent another large decline in prices."
Goldman Sachs justifies OPEC sustaining high levels of production, pointing out that although high output and low prices hurt in the short term, it is "necessary in the face of strongly growing higher-cost non-OPEC production."
The slide in crude prices saw Brent fall to $27.88/bbl on January 20, 2016, which in turn pushed IFO380 prices in Rotterdam down as low as $109 pmt, according to Ship & Bunker data.
A sharp rise in crude and bunker prices last week was dismissed as "idiotic" by Rosneft spokesman Mikhail Leontyev, and Goldman Sachs maintains that oil prices need to stay between $40 and $20 per barrel until the second half of this year, in order to "weed out production" from high-cost producers.
The bank's defence of OPEC is presumably no comfort to Nigeria, one of the member countries that has been pushing the cartel to cut production: a 75 percent plunge in crude prices means it is now losing money on some of the oil it produces, exacerbating its estimated $15 billion deficit and prompting the country to seek emergency financing.
Another country struggling due to the oil price crash is Azerbaijan, whose currency lost 52 percent against the dollar in the last year and whose government is considering obtaining a $4 billion emergency loan.
Goldman Sachs' mention of short term pain especially applies to Venezuela, which traders in December said will have difficulty meeting its debt obligations and could default as early as this month.
