Biggest Oil Buyers Pick Themselves as Winners From OPEC Meeting
Comment of the Day

November 27 2015

Commentary by David Fuller

Biggest Oil Buyers Pick Themselves as Winners From OPEC Meeting

Here is the opening of this topical article from Bloomberg:

Oil buyers in Asia are sure of one thing as OPEC prepares to meet: They’ll emerge as winners from the group’s rift over production.

Members of the Organization of Petroleum Exporting Countries will gather Dec. 4 in Vienna, where Iran has said it will announce plans to boost production by 500,000 barrels a day. That may further lift the 12-member group’s output, which has exceeded its target for 17 months. The increase in volumes would exacerbate a global glut and benefit the biggest oil-consuming region’s refiners, which are seeking cheaper sources of crude.

OPEC is forecast to stick with its strategy of defending market share by maintaining output and driving down higher-cost production elsewhere, according to analysts and traders surveyed by Bloomberg. That’ll leave members including Saudi Arabia free to continue pumping even amid calls from Iran to make room for its extra supply after international sanctions over its nuclear program are lifted.

“This is probably the best time we’ve ever had as a buyer,” said Kim Woo Kyung, a spokeswoman for SK Innovation Co., South Korea’s largest refiner. “We are enjoying an overflow of oil.”

David Fuller's view

There is a growing consensus that the Saudi government will persist with its high-production oil policy, seeking at least a Pyrrhic victory over the lengthy medium term.  This is in spite of recent murmurings about prices falling further than expected and a preference for prices to stabilise in the $60 to $80 region

I feel uncomfortable trading or investing in line with a clear market consensus, which we often see prior to a significant trend change.  Oil market politics are complicated by rivalries.  Nevertheless, we can be reasonably certain than no OPEC member or other oil exporter is happy with today’s low prices for Brent crude

The alleged comments above may be intended to persuade other oil producers to join a new, disciplined regime which reduces supply to boost prices.  The only certainty is that Saudi Arabia will eventually cut its oil production.  That would support a rally to the $60 to $80 region, but only for a while.  Technology has changed the oil market – forever.    

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