OPEC racked with division, but too soon to write it off?
Tuesday September 27, 2016
Investors have been burnt before, and are now skeptical that OPEC will overcome its internal divisions and agree to do something about chronically low oil prices. But could that be the wrong conclusion to draw? Some contrarian voices argue that now is precisely the time to look for a change of stance, in which the fractious group at last gets its act together.
This week’s gathering of OPEC ministers in Algeria looks unlikely to spring surprises as the group again struggled for consensus. Investors have learnt that just because an oil minister from one or another country talks about agreement, that does not mean something will happen. Oil company shares have taken a hit as investors look elsewhere, including at other, more buoyant commodities, participants at an S&P Global forum heard on Tuesday.
But Paul Horsnell, global head of commodities research at Standard Chartered bank, is among those who argue it is too soon to write off OPEC, a group that, when natural gas liquids are included, accounts for well over a third of global oil production and has been expanding its membership.
At Tuesday’s forum he argued that unlike in 2008, when OPEC quickly reacted to the global financial crisis to effectively reduce oil prices, the group has long had difficulty dealing with questions of over-supply. In his analysis, it is above all on the supply side that the roots of the current slump lie – in the rise of US shale and the resurgence of Iran, for example. Standard Chartered believes demand is already out-stripping supply this month, spelling a “balanced” market, with the proviso that a large buildup of stocks has yet to be shifted.
In Horsnell’s view, OPEC has lacked consensus because some members, most obviously Saudi Arabia, wanted other parts of the industry outside OPEC to take some of the strain and help to curb output. But that does not mean sticking to high production come what may. While Saudi messages have not always been...
But Paul Horsnell, global head of commodities research at Standard Chartered bank, is among those who argue it is too soon to write off OPEC, a group that, when natural gas liquids are included, accounts for well over a third of global oil production and has been expanding its membership.
At Tuesday’s forum he argued that unlike in 2008, when OPEC quickly reacted to the global financial crisis to effectively reduce oil prices, the group has long had difficulty dealing with questions of over-supply. In his analysis, it is above all on the supply side that the roots of the current slump lie – in the rise of US shale and the resurgence of Iran, for example. Standard Chartered believes demand is already out-stripping supply this month, spelling a “balanced” market, with the proviso that a large buildup of stocks has yet to be shifted.
In Horsnell’s view, OPEC has lacked consensus because some members, most obviously Saudi Arabia, wanted other parts of the industry outside OPEC to take some of the strain and help to curb output. But that does not mean sticking to high production come what may. While Saudi messages have not always been...