OPEC – an organization with foot in grave

/By Azernews/

By Fatma Babayeva

OPEC’s June meeting is unlikely to result in any significant decision for the global oil market, Eldar Kasaev, a consultant for the Expert Council of the Union of Russian Oil and Gas Producers told Trend on May 20.

Oil prices began experiencing decline during the summer of 2014, whilst the cartel has neither cut nor frozen the oil production during past two years in order to prop up oil prices even when it fell below $30 per barrel, Kasaev noted.

The analyst believes that it is naive to expect that OPEC will freeze oil production under the current circumstances when the oil prices are nearing $50 per barrel.

Nevertheless, the constant production growth of oil will not be observed within the cartel, he said, adding that a number of the cartel members will be forced to take measures because of lack of foreign investments and financial means for the development and maintenance of the current volumes of oil production. Iraq can become one of these states, for instance. The country began the year with hitting record oil output and put forward decent volume of oil output and export, added the expert.

The reduction of oil production is expected in Nigeria where terrorists are very active in attacking the oil infrastructure, said Kasaev by stressing out that the situation is not good in Venezuela’s oil sector either.

In addition, Saudi Arabia – despite its announcements about readiness to give up oil dominance in filling its public purse - is not planning to lower its oil production and exports and allow competitors to take a niche in the European Asian markets, he said.

The expert believes that it has been long time that OPEC operates on the principle “every man for himself” which is obviously proven by the ministerial meetings of the organization.

Kasaev further reminded that one of the main tasks spelled out in the charter of the cartel is to use tools and methods to ensure price stability in the global oil market. However, the practice proves that OPEC is not successful in performing this task.

“OPEC's existence is de jure. It is de facto ill and have one foot in grave,” said the expert.

Sharp political discrepancies and fierce competition for the regional markets does not allow member countries to reach a consensus, according to the expert.

Kasaev believes oil prices to fall as soon as participants of the market get convinced once again that it is groundless to have positive expectations from the upcoming meeting of the cartel.

By the end of 2016, oil prices will most likely average around $40-45 per barrel, Kasaev said, adding that in 2017, oil prices are expected to rise as the supply in the market will decrease, and the balance in the market will be restored.

Previous meeting of OPEC and non-OPEC oil producing countries held in Qatari capital Doha on April 17 resulted in failure as they could reach a deal on freezing oil output of the participating countries.

During the Doha meeting, Saudis refused to curb its production level of oil without Iran’s joining the oil freezing act.

The next meeting of OPEC is scheduled for June 2 in Vienne. Once again, oil producers are going to discuss to revive OPEC’s output quota and try to freeze their oil production.

The cartel ceased setting production quotas for individual members in 2011 and abandoned an output ceiling entirely in December 2015.

The price of OPEC oil basket stood at $43.84 per barrel on May 19, or $1.04 less than on May 18.