Lower oil could force Opec 'surprise move': Hansen

• More pressure on oil could force Opec's hand at December meeting
• Brent and WTI both fell over the weekend before staging a recovery Monday
• Venezuela's oil minister warns Opec must not get into a price war
• Goldman Sachs boss says there is a "15% chance" of $20/b oil in 2016
• Opec kingpin Saudi Arabia using savings to keep pressure on

The next Opec meeting on December 4 is certain to be animated. Photo: iStock

By Martin O'Rourke

 

https://www.tradingfloor.com/posts/lower-oil-could-force-opec-surprise-move-hansen-6620747 

A further deterioration in the oil price could force global oil cartel Opec to temper its controversial supply-and-rule strategy at next month's Vienna summit, says Saxo Bank's head of commodities strategy Ole Hansen.

"Opec probably won't change its strategy, but the continued price deterioration may spark a surprise move from the cartel to stabilise prices," Hansen told TradingFloor.com. "The low price and the pain it's inflicting on everyone will be the main topic."

Opec meets in Vienna on December 4.

Front-month Brent crude rebounded approximately 5% during the European session to $44.75/barrel at 1403 GMT amid news Saudi Arabia might cooperate with non-Opec members on oil-price stabilisation. Front-month WTI was at $41.60/b.

Goldman Sachs Michele Della Vigna this morning had told the BBC that there was a "15% chance" that prices could go as low as $20/b in 2016. That followed on from comments from Venezuelan oil minister Eulogio del Pino Sunday that the cartel could not allow an oil-price war to develop, especially with an Iranian oil production boost looming.

"The addition of Iranian oil in late Q1 will only increase the problem so in that sense it will be a topic [at the meeting] and one that has several geopolitical implications," says Hansen. "The current outlook supports the lower-for longer-price expectation."

The removal of sanctions on Iran as part of the nuclear deal it signed with world powers in July could release up to 1 million b/d onto an already flooded market. Opec has been ahead of its monthly target of 31 million b/d (itself up this year from the former target of 30 mil b/d) by more than 1 million b/d on average.

In October, Opec oil production was at 31.382 mil b/d.

US oil production meanwhile — the clear target of Opec's market-share grab strategy set in stone at last November's meeting — has managed to stay resilient despite the enormous pressure on the bottom line of many shale oil producers in North America.

Current oil inventories are way ahead of the five-year average in the US

 

"Opec's strategy has worked in the sense that the market share has increased and US production has slowed but a heavy price has so far been paid," says Hansen.

"A low point [in the oil price] is going to be seen during the next 3-6 months," he says. "A mild winter combined with the seasonal rise in US inventories and the return of Iranian oil will create a very challenging environment during this time."

That makes a return to the $100/b oil prices of the summer of 2014 unlikely, but not completely out of the question, Saxo Bank's head of commodities believes.

"The combination of capex cuts and a continued rise in demand will trigger the need for higher prices over the coming years," he says. "A return to $100/b is most likely only going to occur if supported by a major geopolitical event as US producers will have increased production dramatically before that level is ever reached."

Meanwhile, even kingpin Saudi Arabia is feeling the pain as the kingdom delves into its savings to keep the pressure on. A nasty battle may yet turn nastier next month.

Martin O'Rourke is managing editor at TradingFloor.com