Baku, Azerbaijan, May 29
By Aygun Badalova - Trend:
OPEC unlikely to cut its output target by a meaningful amount at its next meeting on June 5, Tom Pugh, economists at British economic research and consulting company Capital Economics believes.
The recent rebound in oil prices has taken some of the strain off OPEC members, but prices remain about 40 percent below their level this time last year and some countries are still calling for production cuts, Pugh said in a report obtained by Trend. What's more, there has been much speculation about the potential for closer cooperation between the cartel and Russia."
"However, most comments from key OPEC ministers seem sanguine and it is not clear that even if they did cut their production target, actual output would fall," he added.
Economist believes that there are a number of reasons to expect that OPEC, as a whole, will continue to be relatively sanguine about the fall in oil prices.
"For a start, they may not think that lower prices will be sustained over the long term. Oil prices have already rebounded by about 50 percent," he said.
At the same time Pugh believes that the richer members of the cartel may even see a period of lower oil prices as potentially working in their favour over the longer term, given the boost it should provide to the global economy and hence to demand.
"In addition, lower oil prices has already started to undermine non-OPEC supply especially in the US, given the higher costs associated with shale production in particular," he said.
"Finally, OPEC, lead by Saudi Arabia, has actually been increasing its output over the last few months. Admittedly, much of this extra production is fuelling the additional demand for power in the summer in Gulf countries, but exports are still near record highs," Pugh said in a report.
Even if the cartel did decide it was in its interests to cut output, cohesion within the group is much weaker than it has been previously, he believes. Moreover, compliance with the OPEC target is likely to remain poor.
"The upshot is that OPEC's output target appears to act as a floor on production rather than a ceiling," Pugh said.
OPEC member states will hold the next meeting in Vienna, June 5 to discuss the current situation in the oil market and adopt decisions on the cartel's oil production quota.
Currently, OPEC's oil production quota stands at 30 million barrels per day.
OPEC's oil supply has increased by 160,000 barrels per day in April and stood at 31.21 million barrels per day, which is the highest figure since September 2012, according to the International Energy Agency.
Currently, the oil prices in the market vary within $63 per barrel for North Sea Brent crude and $58 per barrel for the US WTI crude.