Mercado Released [8 June 2015]: OPEC MEETING UPDATE
OPEC kept its current output ceiling at 30 million barrels a day at a meeting in Vienna last Friday. The market expected OPEC’s decision. OPEC took comfort in a 33% rally in crude oil prices since January 2015 and a 56.9% drop in US drilling rigs since January 2015, cuts of billions of dollars in oil capital investments by the world’s biggest oil companies. Iran urged OPEC to pump 4 million barrels a day, back to 2008 levels before Western sanctions intensified. Iran produced 2.8 million barrels a day in May 2015. OPEC’s decision signals intensifying competition for market share among global producers and more pain for US shale oil drillers, who already idled a record number of rigs. It should also keep a lid on energy costs for consumers and help keep inflation in check. OPEC pumped 31.58 million barrels a day in May 2015, exceeding its quota for a 12th consecutive month. OPEC’s largest member is operating with the lowest spare production capacity as output expanded to 10.3 million a day, the highest since 1980s. Iran, Iraq and Libya said this week they plan to add millions of barrels to the market this year. Market share contest is proving more important than price and producers are eager to sell ever more oil even as world demand slows. Our view is OPEC decision is relevant to developing countries because it drives down prices, and crowd out investment in higher-cost basins such as the US shale oil basins which the US had been sowing the seeds of the future price rally. We also believe that crude oil prices are rising on the prospect of tighter US supply, however if the US production does not start to drop soon prices are going to come under pressure again.
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