Baku, Azerbaijan, Sept. 12
By Aygun Badalova -Trend:
OPEC will be unable to reach an agreement in its end-November meeting, creating further downside price risks, analysts from the U.S. bank JP Morgan said in a report obtained by Trend.
Developments to date have not shown a clear indication that members of the cartel are prepared to work collaboratively to balance markets, analysts believe.
"Too many of the member states have argued for a cut to supplies; albeit one that they should not participate in for various reasons. Concurrently, the Gulf trio of Saudi Arabia, Kuwait and the UAE appears unwilling to unilaterally support markets without a more broad-based agreement from the rest of OPEC", they said.
Libya might reasonably expect not to participate in a collective action, given its struggle to restore production and ongoing supply disruptions, analysts said.
"Nevertheless, while Iran, Venezuela, Nigeria and Iraq might all claim some dispensation, if OPEC is to achieve a reduction, we believe they must all participate," the analysts said.
In a lower price range, budgetary pressures at several member states are sufficiently stressed that the prospect of lower volumes and a year-on-year decline in revenue per barrel will not be welcomed, but there is a material downside risk to prices if an agreement is not reached, the analysts said in the report.
Overall JP Morgan's analysts estimate that OPEC supplies need to be trimmed in 1Q2015 by 1 million bpd to avoid excessive stock builds that will weigh on prices.
But cuts appear more likely in February and March as it is envisaged that an agreement may not be reached until sometime in January, analysts believe.
Analysts expect oil prices in December to likely fall towards $70 a barrel, depending on factors such as unplanned supply disruption and geopolitical tensions, and could sink further to $65 a barrel by early-January.
"This sharp decline in prices should provide the necessary catalyst for OPEC to set aside any differences in opinion and reach an agreement to restrain output, notwithstanding the additional effort created by the delay," the analysts said.
The 166th (ordinary) OPEC meeting is scheduled to be held on Nov.27 in Vienna. At the meeting a decision on oil production quotas will be made.
Cartel's current production quota amounts to 30 million barrels per day (mbd). OPEC holds 60 percent of the world's oil reserves and 30 percent of supplies.