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OPEC is Resolute – Policy is Working, No Change

In the run up to this meeting, we had the usual conjecture as to what would happen. Beforehand at registration, I met some of the Nigerian delegation and asked them what they though and they were very enthusiastic that a new Secretary General was going to be appointed.
Elsewhere, rumours were again leaked out that an output deal would be reached but the true reality had already been accepted by most of us, that OPEC would not deviate from the policy that it had set in 2014 by which it would maintain output levels irrespective of price. So, why did over three hundred journalists and analysists and film crews book themselves in to attend, but many did not turn up. We all have views and think we know, but, we can never be sure. We follow and hang on to “fundamentals” and “technicals” and then we have OPEC which can often be depended on to do something different and that is why there is always so much interest.

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doha-opec

The Doha Weekend

As we move closer towards 17 April, the day on which international oil producers have agreed to meet, conjecture mounts with views ranging from bearish to bullish.  No doubt depending upon what outcome is hoped for.

Earlier in the year, there was a ground breaking meeting at which Saudi Arabia and Russia not only met but also discussed the world oil glut and gave the impression that they would like to act to see the market re-balanced in their favour.  However, as often happens, neither party was willing to give way and the outcome of this event was that the two major producers, who are also direct competitors to each other, would freeze their respective output levels at maximum point.  How this was interpreted as “bullish” is hard to understand as, in theory, neither could easily increase beyond these levels anyway and therefore to continue production at these levels would simply add to the current supply surplus.  Nevertheless, it was an agreement which fired up the market and, in the hope of more to come, the OPEC Basket oil price has risen from a low of $22.48 in January to $38.62 today and over the same period the price of Brent Crude has risen from just over $30 to around $44 today.  Yet, nothing has really changed!

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oil

OPEC Meets with Non-Member States

Figures this week confirmed that OPEC’s strategy to stunt US crude production, which started in November 2014, is now bearing fruit with US production now at November 2014 levels. Eleven months after OPEC ramped up output, US output peaked at 9.1 mbpd in June this year and has since fallen by around 500,000 bpd. OPEC meanwhile has seen an increase in demand ramp-up from 29.3 mbpd in 2014 to with demand forecast to reach at least 31.3 mbpd in 2016. However, this has come at a cost as OPEC crude prices are about 46% lower than 2014, equating to around $370 billion dollars in lost revenue.

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