[ 2015-12-08 ]

Oil price could hit $20 as Opec ditches quotas
The price of crude has already plunged nearly by
64 per cent since June 2014

Global oil prices could fall as low as $20 per
barrel next year, as Opec’s decision to abandon
a formal production quota exacerbates a bulging
supply glut.

Speaking as the price of a barrel of Brent crude,
the benchmark international contract, slipped 5.2
per cent to $40.75 in New York, the lowest since
February 2009, Ole Hansen, head of commodity
strategy at Saxo Bank, said it was “difficult to
rule out anything”.

“We could see a shortlived phase of all-out
panic, which could trigger a freefall
situation,” he said. “With no signs of
non-Opec producers, such as US and Russia, cutting
back, the near-term outlook for oil remains very
challenging indeed.”

A meeting of the Opec cartel in Vienna broke up on
Friday with no agreement between members on output
levels.

The price of crude has already plunged nearly by
64 per cent since June 2014, when a barrel of
Brent cost $114, after Saudi Arabia opted to pump
at near-record levels to maintain market share
while putting pressure on producers in North
America.

Mr Hansen said that downward pressure on crude oil
prices would intensify in the first three months
of 2015 because of increased output from Iran and
a seasonal rise in US stockpiles.

Goldman Sachs also warned that Opec’s
inconclusive meeting could trigger further falls,
to as low as $20 per barrel, and said that prices
were now likely to remain “lower for longer”.

There was disagreement between Opec’s 13 members
on how to accommodate the extra Iranian oil
expected to flood the market when western
sanctions over the country’s nuclear programme
are lifted, probably in the first or second
quarter of next year.

Iran has refused to consider reining back its
production until it reaches its pre-sanctions
level of four million barrels per day.Saudi Arabia
has no plans to curb its own production without
cooperation from Iran, Iraq and others.

“The market is taking on board the fact that
Saudi Arabia’s production strategy is long term
and they are simply not going to cut,” Michael
Wittner, an oil analyst at Société Générale in
New York, said.

Opec’s present output is 31.5 million barrels
per day — one third of the world’s oil and
well above its previous official quota of 30
million barrels. The group acknowledged that there
was little it could do to shore up the market as
long as non-Opec producers continued to pump at
near-record levels.

Emmanuel Ibe Kachikwu, the president of Opec, said
that the group was in “wait and watch” mode
until its next meeting, in June. Uncertainty about
Iran’s production was a driver for the decision
not to make changes, he said.

Oil has not traded at its present levels since the
collapse of Lehman Brothers in 2008 sent financial
markets into a tailspin. The latest price fall
came as the European Union said yesterday that it
was dropping an investigation into alleged oil
price manipulation during the financial crisis by
groups, including Shell and BP. Figures to be
published this week by the International Energy
Agency are likely to point to a swelling global
glut of oil, which already stands at about three
billion barrels.

Source - The Times(UK)

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