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Low price may continue as OPEC sees rise in demand not cut in oil extraction for 2015

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Abdalla El-Badri, Secretary-General of the Organisation of Petroleum Exporting Countries [OPEC] has made some interesting observations and revelations during an address to a conference in Bahrain.

There is a continuing glut in the oil markets – not unassisted by OPEC having, in February, completed a ninth month run of month-on-month increases in production over its target extraction level of 30 million barrels a day, confirmed at the organisation’s November meeting, at which they had been expected to cut production to stabilise prices.

The loss of market share to the American shale producers has stung OPEC members to fight for recovery of that market share rather than try to return prices to earlier levels.

It is clear from what Mr El-Badri said that it is by no means certain that, at its coming June meeting, OPEC will then opt to cut back extraction.

He said that the organisations predictions are that demand will rise by 1.2 million barrels a day, from 1 million barrels in the sluggish demand of 2014. Production today is seeing 2 million surplus barrels a day so the OPEC prediction of demand for 2.2 million barrels a day in 2015 would produce a modest under supply without cutting production and with an upward pressure on prices.

The competitive nature of the production situation today – producing the over supply that is keeping prices low, was clear in Mr El Badri’s declaration that it is the rise in shale and in non-OPEC sourced supply leaves OPEC unable to cut production.

Then came the insight into the hardball OPEC is prepared to play.

The OPEC Secretary General offered the information that, since crude accounts for 94% 0f the domestic product of the Gulf states, Kuwait in particular is hurting badly in the current price slump.

This might have been the start of a signal that production might have to be cut and prices drive up again  to protect some members’ economies – although some like the most influential of fhem all, Saudi Arabia, has cashflow problems that energetic pumping helps to assuage.

However, what Mr El-Badri went on to say was virtually to exhort his members to gird up for the alternative value of a determined plunge into entrepreneurial diversification, lessening their economic dependence on oil.

This, alongside the prediction that demand will overtake today’s enhanced supply this year, would suggest that notions of OPEC deciding to cut production at its June meeting may not be well found.


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