Fall in OPEC’s Output not to Save Oil Prices: Experts

Azerbaijan, Baku, 22 October/ Trend , corr A. Badalova, E. Ostapenko/ Fall in OPEC's oil output under condition of negative economic factors will not help stop falling oil prices in a long term, experts interviewed by Trend said.

"If negative economic date continues to persist further, fall in OPEC's oil output will not save prices for a long term," Pavel Sorokin, analysts at UniCredit Aton, part of UniCredit Group, international financial group, said by-email.

The influence of the global financial crisis on oil prices will be discussed in the next OPEC's special meeting on 24 October. The Cartel plans to consider cutting oil production in an attempt to help stabilize prices. Minister of Oil of Iran Golamhuseyn Nozari said on 21 October that OPEC can cut oil production by 2mln-2.5mln barrels a day due to the drop in demand.

"At current condition, drop in OPEC output can help prices only for a short period of time, but it is economic factor which plays an important role for a long term. Improvements in economy, stopping global crisis is vital to the help prices stabilize," Sorokin said.  

Douglas MacIntyre, senior oil analyst at the US Energy Information Administration is also of the same opinion. It is important to also track whether OPEC's actual production matches their words, he said.

OPEC behavior will certainly have an impact, but the global economy is the largest factor right now, MacIntyre said.

Since the decline in prices is related to the economic troubles in the US and elsewhere, if OPEC cuts, and the economy worsens, it could counteract any cut, he said.

Decline in OPEC oil output will not help stop falling oil prices. The monetary factor is the major effecting factor, said Konstantin Batunin, analyst at Alfa Bank, one of the leading investment banks of Russia.

"The main point is the quantitative decline in the output," Batunin said.

A decline of 2mln barrels a day is too much which will lead to disproportion and rise in prices, he added.

"But we face with a question here. Is it worth to pass such a decision under current economic recession? It will either deepen the recession or lead to lower prices and demand for oil," Batunin said.

OPEC countries are not as reach as Saudi Arabia and they need money to develop their domestic social programs. For example, Venezuela and Iran, who face with a hard domestic situation, will insist on the decline in output, Batunin said.

"Countries such as Saudi Arabia will be scared of its "younger brothers" and will agree to a decline. But I do not think the decline will be significant as it poses a threat for restoration of rise in oil demand which is important for OPEC countries," Batunin said.

The drop in output is expected to total to 1mln barrels a day, he said.

Sorokin said decline in OPEC output by more than 1mln barrels a day will be surprise and will have a great impact on oil prices.

The oil prices went up by more than 3% at the beginning of the week prior to the special meeting of OPEC. On 21 October, November futures of American WTI I New-York went up by $2.4 a barrel to $74.25 a barrel.

The correspondent can be contacted at: с[email protected]    

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