"OPEC finished as an oil price-setting mechanism" (exclusive)

Oil&Gas Materials 8 September 2015 12:11 (UTC +04:00)
OPEC is finished as an oil price-setting mechanism, Sam Barden, the director of SBI Markets, an international commodity trading and advisory company believes.
"OPEC finished as an oil price-setting mechanism" (exclusive)

Baku, Azerbaijan, Sept. 8

By Aygun Badalova - Trend:

OPEC is finished as an oil price-setting mechanism, Sam Barden, the director of SBI Markets, an international commodity trading and advisory company believes.

"OPEC cannot agree between itself on production, and members are openly fighting for market share. Saudi Arabia is a case in point," Barden told Trend.

In its latest report OPEC said that it stood ready to talk to all other oil producers, however the discussion should be on a level playing field, so the cartel will protect its own interests.

The current oil production quota of OPEC amounts to 30 million barrels per day, and it is not due to meet until Dec. 4. Saudi Arabia, the world's top oil exporter, and other Gulf states pushed OPEC's strategy shift last year to defend market share rather than cut output to support prices.

Barden believes that the future in oil price stability will only happen when both consumers and producers co-operate in regards to energy.

"I believe this will first happen on a regional basis, and that physical oil will trade via exchange listed instruments rather than on a much riskier bank to bank basis. Non OPEC should have no interest in trying to work with OPEC, as OPEC is finished in all but name," he added.

Barden noted that energy co-operation between consumers and producers, with credible exchange listed instruments, will give price stability, via surety of supply for consumers and surety of demand for producers.

"As part of this transition we will see oil traded in multi currency, and so the dependence on the USD will be less, and energy will be measured in energy usage, rather than USD cost. This will be the real value trade of the future, as producers and consumers will work together for energy savings, meaning oil will have more intrinsic value. The USD takes away the intrinsic value of oil and thus reduces its real value, and the only value is a zero sum game between financial traders. The world has moved on from this," Barden said.

He also believes that Russia and Venezuela can work together on a non-USD oil trading mechanism, and that producers will enter into energy swaps for delivery, making use of energy savings through shipping routes.

Venezuela, which has seen its export revenue collapse amid oil prices fall is the one trying to find the ways to stabilize the situation on the market. Recently the country's president Nicolas Maduro has agreed with his Russian counterpart Vladimir Putin on some "initiative" to bring stability to the market.

Putin and Maduro have agreed to continue talks between OPEC and non-OPEC oil producers, but not on an output cut that would support prices, Russia's Energy Minister Alexander Novak told reporters last week.

Venezuela's president also proposed to hold an extraordinary meeting of OPEC with the participation of Russia, which is major oil producer outside organization.

"Russia as a nation is doing a great job in the field of international diplomacy, but obviously only if it suits Russia," Barden said. "I don't think Russia has any interest in the current market framework. Already President Putin has signaled that the Eurasian trading Union should trade oil in local currency."

"I don't think Russia will want a meeting with OPEC, but if one happens, Russia will use it as a format to drive the change in the market structure that Putin has recently spoken about," he added.

An OPEC meeting with Russia would not be for Russia's benefit, but for the OPEC members benefit, Barden believes.