(MENAFN- ProactiveInvestors)
There’s no need to fill petrol tanks to the brim because cheap fuel prices are here to stay for the most part of 2015 so say OPEC sources.
Whilst Saudi Arabia's oil minister Ali al-Naimi tells the world that OPEC won’t cut output even if the price of oil falls to US$20 other voices claim prices will bounce back over the course of 2015 – albeit to a level only a little higher than the current lows.
Arab representatives of the crude producers cartel according to a Reuters report predict a crude recovery to between US$70 and US$80 per barrel by the end of 2015.
This would be an “acceptable level” according to the un-named OPEC source who also claimed that whilst prices can remain at the current US$60 price or lower for a number of months the “general thinking is that prices can’t collapse.”
The cartel’s ability to control the oil market has been diminished by an ever declining market share as US$100-plus prices have enabled and encouraged higher cost production from non-OPEC sources.
US shale plays are the most commonly cited examples but there are many other sources of what became increasingly marginal sources of crude all over the world.
OPEC by standing firm and resisting a reduced output is banking on higher cost non-OPEC falling back as a result of sustained low prices. The aim is to maintain and increase market share and potential reassert a commanding position in the market.
That the cartel’s relevance and possibly even its existence is under scrutiny underlines the reasoning behind OPEC’s resolve to maintain production volumes – even if prices fall as far as US$20 per barrel.
Increasingly there are signs that US shale producers are feeling the squeeze. Common opinion is that most new shale wells don’t make financial sense at current oil prices and there is evidence that operators are reacting.
Continental Resources for example has reportedly cut spending and has reduced its rig count by 40%.
Continental one of the largest oil producers in the Bakken has halved spending plans nevertheless chief exec and shale oil billionaire Harold Hamm still believes the company can grow production over the course of 2015.
He sees the declining oil price as a cyclical trend and at the bottom end of the cycle he aims to conserve both cash and ‘barrels in the ground’.
It remains to be seen quite how cyclical oil’s demise will be but a comment among the almost daily OPEC commentary sounds a warning to any remaining optimists.
Saudi Arabia’s Ali al-Naimi asserts the world may never again see US$100 per barrel oil ever again.
Whatever the case and wherever the crude price lands this time next year one thing remains certain – the oil market will be a key battleground for investors and traders in 2015 and as such the coming weeks and months will hold much more conjecture.
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