EMEA News
"Plenty of Signs" OPEC's High Output Strategy is Working
John Higgins, chief markets economist for Capital Economics, told media this week there are "plenty of signs" the Organization of the Petroleum Exporting Countries' (OPEC) high output/low price strategy is achieving its desired effect.
Higgins remarked, "If the wealthier Gulf producers are tolerating lower prices to protect market share, there are already plenty of signs that this policy is working: the number of active drilling rigs in the U.S. has collapsed and shale production there is now falling."
Higgins made the remark in the wake of the on-again off-again reports of Russia intending to talk with OPEC about reducing output and stabilizing the market, which he said should not be dismissed considering that country and Saudi Arabia both produce about 10 million barrels of oil per day.
However, Higgins added he was unconvinced that "anything tangible" would come from the repeated calls for action and that "even if Saudi Arabia were ready to change tack and agree to coordinated output cuts, it is not obvious that Russia would be a reliable partner."
Another obvious indication of OPEC's success is the Russian economy, which Chris Weafer, senior partner at Macro-Advisory in Moscow, says will remain in recession mode for at least the first half of 2016 thanks to low oil prices and the volatility of the rouble.
Meanwhile, Amrita Sen, chief oil analyst at Energy Aspects, notes that Russian oil companies such as Lukoil are now calling for output cuts; he thinks there is little downside for Russia to press for a deal with OPEC.
However, it is unclear whether the country will make a unified effort to do so: Gazprom will reportedly increase crude output this year and into 2017 and may only begin closing wells if prices drop below $15 per barrel.
