OPEC not rushing to boost production rates as oil hits $80 a barrel
OPEC is not in a rush to start winding down the production cuts despite oil prices continuing their strong rally, with Brent hitting $80 a barrel on Thursday. The cartel sees the price spike as only a short-term rally driven by geopolitical concerns rather than the fundamentals of a much tighter oil market, OPEC delegates and sources have told Reuters.
Saudi Arabia, OPEC’s largest producer and de facto leader, views the temporary speculator-driven oil price rally as not enough to start raising production, according to an OPEC source familiar with Riyadh’s thinking.
Supply and demand data need to point to an impact on supply in order for OPEC to make a decision to start winding down the cuts, the source told Reuters.
Asked if $79 oil is too high, one OPEC delegate told Reuters: “Not yet.”
OPEC’s original goal in the production cut pact was to bring oil inventories in developed economies down to their five-year average, and according to the cartel itself, as of March those stocks were just 9 million barrels over that level, and are probably below it by now.
More: US 10-year Treasury yield jumps to highest level since 2011, now above 3.06%
More: As Trump blasts illegal immigrants, video captures man's N.Y. rant about Spanish speakers
More: What's the best place to keep money you need to use soon? Ask a Fool
Yet, OPEC — especially Saudi Arabia — is now trying to justify a prolonged period of cuts to tighten the market further, signaling that the five-year average metric would be revised and/or complemented by other data points, such as forward coverage, longer average periods to consider, or even investment in necessary new longer-term supply.
The most vital industry information will soon be right at your fingertipsJoin the world’s largest community dedicated entirely to energy professionals
OPEC and friends are meeting on June 22 in Vienna to discuss these metrics and the state of the oil market.
Meanwhile, Saudi Arabia is said to be pushing for $80 a barrel oil or even $100 a barrel, to balance its budget and boost the valuation of Saudi Aramco ahead of a much-anticipated IPO.
Iran, however, is reportedly at odds with Saudi Arabia on the oil price that the cartel should target (although none of them admit there is a price target at all). According to senior Iranian oil officials, the reasonable oil price for Tehran would be $60-65 a barrel.
Oilprice.com is a Paste BN content partner offering energy industry news and commentary. Its content is produced independently of Paste BN.
More top reads from Oilprice.com:
Iran Sanctions Threaten The Petrodollar
Could This Be The Next Proxy War In The Middle East?
The Top Performing Stock Of The U.S. Shale Boom
