Post OPEC's chaotic Friday meeting in Vienna, it looks like Saudi Arabia is content to maintain its policy of pumping oil at near record levels until rivals -- external, such as Russia and U.S. shale drillers, as well as internal -- are squeezed out of market share. Notably, the ceiling of 30 million barrels a day, in place since 2011 has now been abandoned. According to Bloomberg data, OPEC output has outstripped the 30 million mark for 18 consecutive months. Interestingly, OPEC says it will keep pumping as much as it does now -- about 31.5 million barrels a day -- effectively endorsing limitless output. Based on these comments, it looks like the OPEC cartel is effectively dead, and won't be going back to the days of setting production ceilings and working against customers. The main takeaway from OPEC's Friday meeting is that oil prices will clearly be heading lower in the near term, but the big question remains for how long......? Factoring in the global oil supply glut and slowing demand in China, somewhat offset by high global decline rates and billions in capital that's been removed from the system, oil prices are likely to remain low for a least the next 6-12 months.
As oil prices hover around $40/Bbl, Saudi Arabia continues to pump oil at record levels hurting other OPEC members (such as Venezuela, Algeria, etc.). Iran in particular is looking for Saudi to cut production as it plans to re-enter global oil markets after years of sanctions. With U.S. sanctions on Iran possibly ending as soon as January, Iran is threatening to deepen the oil glut with new output. Notably, Iran has nearly 60 billion barrels of proven oil in its soutwest region alone, and is hoping to ramp-up production by 1.5 million barrels by the end of 2016. This level of production would lift Iranian output to 4.3 million barrels per day, putting it behind only Saudi Arabia among OPEC members. Should Saudi Arabia cut production in the near term to boost oil prices, Iran could stand to benefit immensely in 2016 with an oil price at $70-$80. It is clear that Saudi Arabia wants to avoid giving Iran any additional power, which likely means that Saudi will keep the supply coming for the foreseeable future (translating into weaker oil prices for longer).
A Canadian Energy expert