OPEC keeps oil production at current high level

OPEC requires consensus among members to alter its output ceiling. The group is producing above its current ceiling, and the return of Indonesia to the cartel plus a ramp up of production in Iran is making it look even less meaningful. After all, no actual additional oil will come onto the market as a result and our forecasts were never based on OPEC cutting output. “(There are) absolutely no disagreements anywhere”, he added before the meeting started. “Americans don’t have any ceiling, Russians don’t have any ceiling, why should OPEC have a ceiling?”

The cartel on Friday published no figures on output in its communique, as it awaits increased output from Iran after sanctions were lifted on the Islamic republic.

According to some estimates, the US, Russia and Saudi Arabia are together producing about 1 million bpd more than they were in the middle of a year ago.

Having reviewed the oil market outlook for 2015, and the projections for 2016, the Conference observed that global economic growth is now at 3.1% in 2015 and is forecast to expand by 3.4% next year.

In the last few weeks, investors have run up big bearish bets, or short positions, betting on a fall in the price of crude oil, which could be rapidly unwound if OPEC were to give any signal that it might adjust its stance on supply. The latest numbers see OECD and non-OECD inventories standing well above the five-year average.

Iranian oil minister Bijan Zangeneh said before the meeting that Tehran would be prepared to discuss action only when his country reached full output levels, if and when western sanctions are lifted.

“World oil demand in 2015 will grow by 1.5 million barrels per day, up from one million barrels per day in 2014”. Capital Economics is predicting the price of crude will be at US$60 a barrel at the end of 2016. This is clearly illustrated by the drop in the number of newly drilled wells and the reduction by half of active drilling wells. “According to analysts, OPEC countries which depend on oil revenues might face a hard endurance test in the event of a further decline of the oil price”.

Friday’s announcement sent ripples through wider markets, but losses in oil futures were limited as prices hit key support levels around $40 a barrel.

One possible scenario is for OPEC to recognise the fact that members are pumping well in excess of the formal ceiling, raising the group’s collective quota from 30 million bpd to 31.5 million bpd, in line with the current volumes.

OPEC was not expected to change its output policy, but nervousness among traders and investors ran high.

“We do not expect our colleagues in OPEC to put pressure on us…”