Kemp: OPEC's Options (None of Them Good)

Kemp: OPEC's Options (None of Them Good)
As ministers from the 12 members of the Organization of the Petroleum Exporting Countries (OPEC) prepare to fly to Vienna for their 166th meeting, the quiet consultations and soundings have already begun.

Reuters

(John Kemp is a Reuters market analyst. The views expressed are his own)

LONDON, Nov 17 (Reuters) - As ministers from the 12 members of the Organization of the Petroleum Exporting Countries (OPEC) prepare to fly to Vienna for their 166th meeting next week, the quiet consultations and soundings have already begun.

OPEC must decide whether and how to respond to the 30 percent decline in oil prices since the middle of June, in what may be the organisation's toughest test in five years.

Slower oil demand growth and rising competition from non-OPEC suppliers, especially U.S. shale producers, pose a common threat to all the organisation's members.

But formulating a common response will be hard because the slowdown in demand and the shale revolution have had a very different impact from member to member.

Saudi Arabia, Kuwait and the United Arab Emirates are producing and exporting close to their highest-ever levels of crude, according to the BP Statistical Review of World Energy.

All three countries have built large financial reserves so they could weather a prolonged period of lower prices without too much effect on their day-to-day government operations.


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Stan Chiezey | Nov. 21, 2014
Quite a difficult and interesting balancing act for OPEC this time around. Production cuts may not necessarily be the solution as non-OPEC exporting countries will surely be waiting on the sidelines to fill any supply gaps that may be created by such production cuts. Rather than rush into the usual production cuts and forced price increase, OPEC should continue to maintain current production levels and use potential increase in demand to stabilize and subsequently sboreup prices. This will definitely not be a "quick fix solution" but will be more of a long term benefit.


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