At OPEC’s 167th ordinary session held alongside its sixth international conference in Vienna last week, energy ministers from its member countries continued to put on a brave face and were seemingly in a buoyant mood.
The collective sentiment throughout the weeklong event from the ministers reflected the now-much-rehearsed and standardised mantra of seeking ‘balance’ and ‘stability’ in world oil markets.
Although the group (or ‘cartel’ depending on your views) has reaffirmed its commitment to maintain production levels at 30 million bpd in a bid to hold onto market share, the decision comes amid a market environment that has rapidly evolved over the past 9 months.
“At this point there’s no political consensus to be able to move to any sort of different production target...generally OPEC is always a very reactive organisation, you need to have an organisation that has a number of members that are under some great deal of stress"
Qatar’s Energy Minister, who was named ‘Alternate President’ for the conference, said that global demand for OPEC crude was expected to rise slightly to 30.3 million bpd and 30.7 million bpd in the third and fourth quarters of this year respectively.
“Looking at the oil market today, there are a number of reasons to feel more optimistic about the general situation going forward. The global economic recovery is showing encouraging signs, oil demand is improving. Indeed, going by current trends, there should be a more balanced market in the second half of the year,” he said in his welcome address.
OPEC believes this is due to a moderate increase in global economic activity – GDP growth is expected to rise to 3.3 per cent this year and 3.5 per cent in 2016.
Congruently the group has forecasted oil demand to increase in the second half of this year and in 2016 with much of this coming from non-OECD countries.
On the supply side, non-OPEC growth in 2015 is expected to be just below 700,000 barrels per day, which is only around one-third of the growth witnessed in 2014.
The Conference also observed the recent build in stocks and the surplus of oil in both OECD and non-OECD countries, which has resulted in stock levels that lie well above the five-year average in terms of absolute volumes, indicating that the market is comfortably supplied.
Nevertheless, like his acolytes, HE Dr Mohammed Bin Saleh Al-Sada held market speculators and abundant oversupply as key factors for the halving of the price of oil.
May oil import figures for China - in April, for the first time becoming the world’s largest crude importer from mostly the Middle East - show a sharp drop of nearly 11 per cent to 5.49 million bpd on a year-on-year basis.
One influential industry analyst has said oil could dip back below US$60 in next couple of months despite the OPEC decision. The reason being US shale activity, which has seen a major slowdown since the fourth quarter 2014, could well be ‘re-incentivised’ to increase production due to oil’s recent rally above $60.
Predictably, OPEC has sought to downplay non-OPEC oil supply expecting growth this year to be just below 700,000 bpd which it highlights is “only” around one-third of the growth seen in 2014.
But Jamie Webster, senior director for Global Oil Markets at IHS believes that with the twin threats of losing market share and the potential for not only Iraqi but Iranian crude to flood the market in the near future, OPEC's internal politics is probably its strongest motivator for keeping its output unchanged.
With the possibility of sanctions being lifted on Iran coupled with the sectarian nature of the conflicts in Yemen and Iraq, some say tensions between Gulf OPEC members and Iran are possibly the highest they have been in half a century.
“At this point there’s no political consensus to be able to move to any sort of different production target, said Webster shortly before the latest OPEC meeting. “Generally OPEC is always a very reactive organisation, you need to have an organisation that has a number of members that are under some great deal of stress, and while some certainly are, Saudi Arabia is still very much in a good position despite spending down quite a bit of its foreign exchange reserves already.”