Traders Test OPEC 'Whatever It Takes' Resolve To Defend Oil Price
SINGAPORE/LONDON, June 22 (Reuters) - When OPEC leader Saudi Arabia pledged in May to do "whatever it takes" to defend world oil prices, it didn't expect the market to be testing its resolve just one month later.
As the Organization of the Petroleum Exporting Countries extended oil production cuts, oil prices fell 18 percent in just 20 days. OPEC members appear determined not to rush into deeper output curbs despite market pressure.
Oil traders have chosen to ignore bullish news for prices - including a long-awaited decline in U.S. oil stocks on Wednesday - and focused instead on negative factors such as a stubborn global glut.
As a result, the oil market posted its worst performance in the first six months in two decades effectively signalling its refusal to accept the effectiveness of the OPEC statement and its desire for further production cuts.
The "whatever it takes" pledge was made by Saudi Energy Minister Khalid al Falih at a meeting in Kuala Lumpur in early May, echoing a promise by European central banker Mario Draghi five years ago during his successful fight to defend the euro.
"You cannot fight the Federal Reserve but you can fight OPEC," said Bob McNally, President of the Rapidan Group, a Washington-based energy market and policy consultant. "Somebody at OPEC has to cut further but no one is willing."
The oil price decline and Saudi's ability to defend prices also puts in the spotlight Saudi Arabia's future king, 31-year-old Prince Mohammed bin Salman, who on Wednesday was made next in line to the throne by his father King Salman.
Prince Mohammed has been the ultimate Saudi energy decision-maker in the last two years and his strategy has shifted from orders to raise oil production to defend OPEC market share to curbing output to prop up prices.
Waiting It Out
Falih and other OPEC ministers and officials have said the cartel would not rush to deepen production cuts from the current four percent to arrest the price decline.
They said the group would rather wait until existing joint cuts with non-OPEC Russia finally result in a global stocks decline during the third quarter when demand for crude oil is usually strong.
OPEC and Russian sources also told Reuters there were few signs the group is preparing any extraordinary action ahead of a joint ministerial monitoring committee meeting in Russia at the end of July.
"We are in discussions with OPEC members to prepare ourselves for a new decision," Iranian Oil Minister Bijan Zanganeh said on Wednesday. "But making decisions in this organisation is very difficult because any decision will mean production cuts for the members," he added.
An oil price surge at the end of the last decade and the start of this one spurred multiple oil production projects around the world, including from U.S. shale formations, resulting in global oversupply which sent prices tumbling from $120 per barrel in 2014 to below $30 per barrel last year.
OPEC and Russia tried to stabilise prices with cuts at around $50-$60 per barrel, but this week Brent prices fell towards $44 per barrel on persistent oversupply worries.
12
View Full Article
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- Weatherford CEO's Rebound Plan Relies On Getting Smaller
- Iran Says Oil Market Is Too Tight For US Zero Exports Target
- China's Squeezed 'Teapots' Eye Petchem Path To Riches
- Baker Hughes: US Drillers Add Oil Rigs For Second Week In Three
- Venezuela Hands China More Oil Presence, But No Mention Of New Funds
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Major Oilfield Discovery
- EIA Drops 2024 Henry Hub Gas Price Forecast
- EIA and Standard Chartered Offer Up Latest Oil Price Predictions
- Red Sea Region Sees Another Watershed Incident
- Chevron Oil Project in Kazakhstan to Cost $48.5B
- OPEC Voices Encouragement after IEA Affirms Support for Oil Security
- Biden Govt Bares Strategy for Freight Charging, Hydrogen Fueling Infra
- Rystad Looks at the Buzz Around White Hydrogen
- Ukraine Hits Third Russian Refinery In Escalating Drone Strikes
- VIDEO: Missile Attack Kills Crew Transiting Gulf of Aden
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Major Oilfield Discovery
- What Is the Biggest Risk to Offshore Oil and Gas Personnel in 2024?
- Is Peak Oil Demand Close?
- Vessel Sinks in Red Sea After Missile Strike
- JP Morgan, Standard Chartered Reveal Latest Oil Price Forecasts
- Exxon Rights in Stabroek Do Not Apply to Hess Merger with Chevron: Hess
- Rystad Forecasts Net Production of Top Permian Producers in 2024
- Analysts Reveal Latest Oil Price Outlook Following OPEC+ Cut Extension