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OPEC's "unexpected" decision

Oil&Gas Materials 27 November 2014 20:33 (UTC +04:00)
The decision made today by the member countries of the Organization of the Petroleum Exporting Countries (OPEC) to keep the oil production quota unchanged was widely anticipated.
OPEC's "unexpected" decision

Baku, Azerbaijan, Nov. 27

By Aygun Badalova- Trend:

The decision made today by the member countries of the Organization of the Petroleum Exporting Countries (OPEC) to keep the oil production quota unchanged was widely anticipated.

At the OPEC's 166-th meeting in Vienna on November 27, it was announced that the organization's member countries have made a decision to keep oil production quota unchanged at the level of 30 million barrels per day.

At the meeting, the Secretary of OPEC Abdalla Salem El-Badri said that currently the market prices are low, however OPEC plans to wait and see how the market behaves, and reacts to such volumes.

"We see that the decline in oil prices do not reflect the market fundamentals," he said at the meeting.

The announced decision was basically foreseen, judging by the recent statements of the OPEC cartel's member countries.

Meanwhile, the last hope for the oil production cut was nullified by a statement made earlier by Bijan Namdar Zangeneh, the oil minister of Iran, which is an OPEC member country.

Zangeneh said in his statement that Iran is not going to cut production, although, recently his country has been an ardent supporter of stabilizing prices by means of adjusting the level of supplies.

Morning Nov. 27 amid the weakening of the chances for OPEC to take a decision to cut the oil production, the oil prices plummeted once again. The WTI oil price fell by $1.48 to $72.19 per barrel, while Brent oil price went down by $2.27 to $75.48 per barrel.

As soon as the decision of OPEC was announced, Brent price has fallen to $74,62 per barrel, and WTI fell to $71,23 per barrel.

OPEC's decision shows that the current oil prices still stand at a level that is acceptable for the cartel countries, and don't pose a threat to their economies. However, this is also arguable. For such OPEC countries as Iran, the further decrease in oil prices can have quite serious consequences.

In case of Iran, such a sharp change of position can be explained by a failure in negotiations on the Islamic Republic's nuclear program. As for the other members of the cartel, it is most likely that they decided to take a wait-and-see policy and observe how the prices will behave next. After all, according to the majority of countries, the current decline is not due to an excess of supply on the market.

OPEC Secretary General Abdalla Salem El-Badri previously said that the supply is growing in parallel with the demand, but the scope of increase of supply does not actually correspond to the 25 percent change of the price that occurred on the market.

The result of OPEC's decision will probably be further fall in oil prices. Oil prices may even decline to $65 per barrel if cartel's member countries don't take any action, according to the US JP Morgan bank.

At the same time analysts believe that the further fall in oil prices will become a strong catalyst for OPEC members to resolve their differences in opinion, albeit perhaps not until the New Year.

Aygun Badalova is Trend Agency's staff writer.

Follow her on Twitter: @AygunBadalova

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