Americas News
Crude Prices Skyrocket as Possibly "One of the Worst" OPEC Meetings Draws Closer
Once again, the Organization of the Petroleum Exporting Countries (OPEC) and its impending meeting in Vienna heavily influenced crude trading on Thursday, but this time instead of incurring losses U.S. crude shot up by 1.9 percent due to indications that the cartel may not ease its output restrictions after all.
Rumour and expectations had been building over the course of a week that OPEC would concede to alleged unofficial requests from the U.S. to boost output, thereby setting into motion a trend to lower prices and avoid any further criticism that it was artificially boosting crude values.
But all it took to cast this assumption into serious doubt was a comment made by Mustapha Guitouni, energy minister for Algeria, on state radio: "What matters to us is that there is a balance between supply and demand to ensure the stability of the oil markets."
This was widely perceived to imply that OPEC would not roll back its production caps, even though technically this would be feasible provided the cartel's persistent claims that it has achieved market balance are in fact true.
Guitouni's remark, coupled with news that OPEC member Venezuela is nearly a month behind delivering an estimated 24 million barrels of crude to customers from its main export terminals, stoked fears of a tightening market and resulted in West Texas Intermediate jumping up $1.22 to $65.95 per barrel, and Brent skyrocketing by $2 to $77.36 per barrel.
Some analysts think OPEC raising production is still in the cards: in assessing Thursday's trading activity, Abhishek Kumar, senior analyst for Interfax Energy, remarked, "Venezuela's worsening economic crisis, together with ongoing geopolitical tensions in the Middle East, will remain supportive of oil prices.
"Nevertheless, growing prospects for an increase in production from OPEC plus rising oil output from the U.S. will cap price gains."
John Kilduff, founding partner at Again Capital, took a contrary view, theorizing that almost two weeks of crude price losses may persuade OPEC - many of whose members need high oil prices to boost their ailing economies - to stay on course: "They're all seeming to push back on the Saudis' push to raise production; with this more than 10 percent [price] fall, they may reconsider things as we come closer to the meeting."
Kilduff's portrayal of OPEC as an organization deeply divided about what course to take was shared by Eugen Weinberg, head of commodity research at Commerzbank: he told CNBC on Thursday that the June 22 meeting in Vienna "might be one of the worst OPEC meetings since 2011" - referring to infighting between members that occurred seven years ago over whether to tackle high oil prices (then around $118 per barrel) by increasing production.
Weinberg went on to say, "I think OPEC will try to somehow moderate the current situation, but it will be very difficult given their opposite sides and the huge difference and the divergence in the views from the countries with no spare capacity like Iran and Iraq on one side who are pushing for no production increase, and the others like Russia and Saudi Arabia and Kuwait who have more spare capacity and are wishing to increase production on the other side.
"Whether an agreement will be possible in this situation is questionable."
One thing is certain: since the beginning of the production cuts, many OPEC members signaled their desire to be rid of such restraints, and not only did this lead to widespread cheating but also a skewed type of reporting on the part of OPEC whereby circumstances such as seasonal downtime and civil uprisings in the recalcitrant member countries were counted as compliance.
Now in its second year, the OPEC cutbacks have seen Russia as well as Iran and Iraq (contrary to Weinberg's comment) express their ambition to boost production for their own gains, and earlier this week a member of a newly elected political party in Iraq declared outright that its share of exports should be unlimited.
