OPEC Policy Rollover Likely In June As Oil Rebounds -Delegates - Gulf Business
Now Reading
OPEC Policy Rollover Likely In June As Oil Rebounds -Delegates

OPEC Policy Rollover Likely In June As Oil Rebounds -Delegates

While the June meeting in Vienna is likely to hear demands from some members for a reduction in the amount of oil pumped, a curb is largely unlikely.


OPEC countries are set to maintain current production levels at a meeting next month, three delegates said, as Gulf states continue to focus on market share and a rally in crude prices mutes calls from other members for supply cuts.

While the June 5 meeting in Vienna is likely to hear demands from some members of the Organization of the Petroleum Exporting Countries for a reduction in the amount of oil pumped, even officials from countries which favour a curb see it as unlikely.

A surprise rally driven by tensions in the Middle East and signs the supply glut will ease pushed Brent crude to a 2015 high of $68.23 a barrel on Tuesday, up from January’s nearly six-year low close to $45. Oil prices more than halved last year after reaching $115 a barrel in June.

“The prices were expected to be below $40 for Brent,” said a delegate from a Gulf OPEC country. “The prices have been better than everyone expected, so OPEC policy will continue most likely.”

Last year’s collapse in oil prices accelerated after OPEC refused to cut its output limit of 30 million barrels per day in favour of defending market share. That shift in policy was driven by top exporter Saudi Arabia, which has raised output to a record high, and supported by Gulf states.

Oil’s plunge sent shockwaves through financial markets already fretting about consumer price deflation in highly indebted Europe and elsewhere, and prompted inflation-targeting central banks to slash interest rates to zero and even below.

The deflation scare has receded as prices have bounced back, with cheap oil helping spur consumer demand and economic growth.

After a near 50 percent jump since January, crude prices are being watched closely by bond markets and policymakers. Yields jumped last week as four months of deflation in the euro zone ended, while the Federal Reserve is expected to raise U.S. interest rates for the time since 2006 later this year.

Riyadh announced leadership changes at Saudi state oil company Aramco last week and there is speculation oil minister Ali al-Naimi may retire after two decades in post, but there has been no sign so far it is considering a change in OPEC policy.

At OPEC’s last meeting in November, a majority of members favoured output curbs to support prices. But the four Gulf members, who together account for more than half the group’s output, refused to cut without the participation of non-OPEC producers.

Delegates who support keeping current policy see signs that lower oil prices are stimulating global demand and putting a brake on more expensive sources of supply, such as U.S. shale production. Any action that pushes prices back up could kill off these nascent trends.

“The market is coming back from the demand side, it’s gradual but it is coming back,” said an OPEC source.

“For the next OPEC meeting, 99 percent it will be a rollover. The market expects this.”


Non-Gulf countries are nevertheless likely to repeat calls for cuts in output, among them Venezuela, suffering from a slowing economy and soaring inflation, and producers such as Algeria whose finances have been hit by falling oil revenues.

Iran wants other OPEC members to make way for a rise in its exports if it succeeds in reaching a final deal with six world powers over its nuclear programme. A deadline for agreement on the nuclear issue falls on June 30.

“Iraq is increasing each month and if that is so, and if Iran is back, then either the price has to go down or there has to be some sort of arrangement,” said a source familiar with Iran’s oil policy. “These are all items to be discussed.”

But the OPEC source said that even though a nuclear deal would weaken prices, it would take some time for Iran to raise production. Analysts saw the framework accord announced in April as offering little chance of a significant increase in exports until 2016.

Non-Gulf members argue that it is better to sell less oil at a higher price. A delegate from an African OPEC country which wants a supply cut does not expect one in June, however, unless Saudi Arabia changes its stance or Russia and other non-OPEC members signal their willingness to join output cuts.

“I believe that countries as mine will not have much influence in front of Saudi Arabia and Gulf states in decreasing the production,” the delegate said.

“OPEC is presently dominated by the Gulf producers.”


Scroll To Top