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OPEC sees oil drop as short-term, expects stronger demand

OPEC sees oil drop as short-term, expects stronger demand thumbnail

A drop in oil prices this month is likely to be short-term and will not deflect OPEC from its policy of keeping output high to defend market share, delegates from Gulf OPEC members and other nations said.

Falling Chinese stock markets and the Greek debt crisis have raised concern about demand, while the Iranian nuclear deal could lead to higher oil exports from the Islamic Republic. Benchmark Brent crude LCOc1, trading below $57 a barrel on Wednesday, has fallen more than 10 percent in July.

OPEC, in a major policy shift, decided in November against cutting its production target of 30 million barrels per day (bpd) to prop up prices, seeking instead to defend market share against U.S. shale oil and other competing sources. The group reconfirmed the strategy at a meeting in June.

Kuwait’s oil minister, Ali Saleh al-Omair, was quoted on Tuesday expressing confidence in the outlook, saying producer countries expected stronger global economic growth to boost prices.

And three delegates from members of the Organization of the Petroleum Exporting Countries speaking this month said the price drop was unlikely to last and OPEC would not alter strategy, also citing expectations for stronger demand.

“I don’t think so, it is not time for OPEC to change,” said a Gulf OPEC delegate. “Demand will be more than in the first half (of the year) although there is some uncertainty about the economy. The prices will remain around $60.”

A second Gulf delegate said even if prices fell slightly below $50 a barrel, as long as the drop is for a short time it is unlikely OPEC would lower its output ceiling. “Prices will not stay down forever,” the delegate said.

The OPEC policy shift was led by Saudi Arabia, supported by its Gulf allies, despite calls for supply cuts from Iran and smaller producers concerned about the impact of lower prices on oil revenue. OPEC does not meet again until Dec. 4.

To be sure, some OPEC countries may renew calls for supply cuts following the price drop. Algeria’s energy minister said on July 14 an extraordinary OPEC meeting could be called, and Iran has been lobbying for other OPEC members to curb supply to make way for the hoped-for rise in its exports.

But even OPEC delegates from countries that favor a higher oil price don’t expect the Saudis to change course – at least for now.

“It does seem that the Saudi tactic of beating the U.S. shale oil producers is not being successful,” said an official from an OPEC country outside the Gulf. “But they probably will maintain it.”

While Iran hopes to boost crude exports rapidly once sanctions are lifted, Gulf OPEC delegates do not expect significant volumes before 2016 and are betting higher global demand next year will absorb the extra oil.

A fourth OPEC delegate from a country that usually supports supply curbs agreed with the Gulf delegates that no action from the producer group was needed at present.

“I see it as short-term and expect prices to recover,” the delegate said of the price drop.



55 Comments on "OPEC sees oil drop as short-term, expects stronger demand"

  1. Davy on Fri, 24th Jul 2015 6:48 am 

    NR, this is one of those profound questions for a doomer and prepper like us. We live this daily. Now that the cascade of systematic failures mount we are asking ourselves what is ahead. The system still has plenty of resources for the short term. There are plenty of poor people and poor countries that can be triaged out. We are not in a food or fuel crisis yet which is the most critical point for continued BAU. Food and fuel could go into crisis quick by systematic failures of production and distribution but we have good stocks of both.

    It appears currently it is the systematic failures of economy especially the financial sector that are the immediate danger. The powers to be have shown the ability to keep things together. I personally suspect this will continue for some time but with increasing dysfunction, abandonment, and irrationality. Descent is random and variable in this regard. The long boil is reaching phase change and the turbulence of steam is appearing. Nobel Laureate Richard Feynman described turbulence as “the most important unsolved problem of classical physics.”

    I feel once we enter a full blown recession or worse we will be on the path of a bifurcation because of the disequilibrium state of our systematic condition. Our global system is no longer stable. There are far too many issues that need constant attention. Once we cannot attend to these problems we are in trouble. This is locally all the way up to the global. It is broad spectrum predicament of limits and marginal return on efforts we are seeing these days especially since 08.

    A systematic bifurcation could lead to conflict or cooperation. Conflict seems more likely but again how to do predict human behavior? If we have a bad enough crisis people will demand action. This will drain the ability of the war pigs to conduct their militaries. The US for example may have to scale back activities to cover the home front.

    We know a wider war between major powers will destroy the global economy quickly from the systematic disruption to food, fuel, and vital resources to the just-in-time production and distribution of the global economy. Major war will be quick with catastrophic results to especially food and fuel supply.

    Some here think the powers to be are planning this as a means to an end. I just don’t know. All the geopolitical conspiracy theories we hear on this board are just theories. I am not dismissing them but I tend to be more abstract and look at the systematic dynamics side of the equation.

    I feel this break to a lower level of activity is coming on sooner than later primarily from China’s economic troubles. Chinese growth was the last engine of the global system keeping activity levels safe. Commodity supply and demand issues will be a serious problem for the global economy. This deflationary situation makes debt increasingly unpayable across a broad spectrum.

    At what point will loss of production and economic activity destroy the lines of production and distribution of the global economy. All locals have been delocalized. We are all dependent on the global in a dangerous and delicate way. All vital elements of society are at risk to a systematic contraction.

    All vital networks are globally connected in so many ways. Even areas that are less exposed to the global in the past have been quickly taken over by the global in the last 20 years. Overpopulation threatens even poor areas that normally could transition to a local subsistence economy. Now even these areas are at risk from large population areas in and around most third world countries. The rich world has over consumption issues to contend with. All modern economies have urbanization in complex and energy intensive arrangements. Over population may not be as bad but the dependence on complexity and energy intensity is.

    Frankly there is nowhere that is safe. We are all in this together. With this understanding we would think some form of cooperation may be possible. I really hope because without global cooperation we could see hell on earth. It is going to be painful and ugly anyway but we humans can surely fuck painful and ugly up worse. Humans have an amazing skill for destruction. This is probably because of our extreme individualism. IMA and individualism that is extreme in the modern world. You take an ant colony and they will fare better than humans in a catastrophic situation because they all work together.

  2. JuanP on Fri, 24th Jul 2015 11:08 am 

    Apneaman “… as the industrial particulate falls back to earth and global dimming goes away.” This is one of those factors, say like methane hydrate/clathrate evaporation or increased heat absorption in the Arctic because ice reflects more heat than melted water, that make me disagree with people that think that the environment could be saved if we collapsed now. We’ve already activated too many irreversible triggers. Some of these trigger mechanisms have decades long delay systems built in, but the shots have been fired and the effects are unstoppable at this point, IMHO.

  3. Davy on Fri, 24th Jul 2015 11:48 am 

    Juan, I have to agree with you. It sounds good to have a collapse to mitigate AGW and modern man pollutions but the reality is not so pretty. Sure industrial emissions will go down but people will find other sources of heat and food. Many waste efforts will have to be abandoned. Dirty sources of energy will be used if people are desperate. I guess it also matters how many people die and how quick. Juan made the most important point though that changes are in the pipeline that cannot be changed. We are screwed and it is too late. I get back to this constantly it is time to have a plan B of mitigation and adaptation policies and efforts. We can’t change the outcome but we can make it less painful.

  4. JuanP on Fri, 24th Jul 2015 12:36 pm 

    Dave, My approach is somewhat based on adapting and preparing for the worst, hoping for a better than worst outcome despite how things are going, while enjoying what I am doing at the moment as much as possible.

    In the suburban neighborhood I grew up in, where houses have an average of 3 fireplaces, burning wood for heat is illegal now because there are so many fireplaces that the air gets too polluted from the smoke. Most of those fireplaces run on Bolivian natural gas or wood pellets now. When that gas and the pellets stop coming, Uruguayan trees will last two or three unbreathable winters.

  5. JuanP on Fri, 24th Jul 2015 12:45 pm 

    Davy, At this point, I have no opinion on whether collapsing now or collapsing later would be better for humanity and/or the environment in the long run. I’ve changed my mind on the subject a few times through the years.

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