Oil prices could plunge to $60 if OPEC does not cut output

Discussion in 'Europe and Russia' started by AVERAGE INDIAN, Nov 24, 2014.

  1. AVERAGE INDIAN

    AVERAGE INDIAN EXORCIST Senior Member

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    LONDON: Oil prices could plunge to $60 a barrel if OPEC does not agree a significant output cut when it meets in Vienna this week, market players say.

    Brent crude futures have fallen 34% since June to touch a four-year low of $76.76 a barrel on November 14, and could tumble further if OPEC does not agree to cut at least 1 million barrels per day (bpd), commodity fund managers say.

    "The market would question the credibility of OPEC and its influence on global oil markets if there was no cut," said Daniel Bathe, of Lupus alpha Commodity Invest Fund.

    That could send Brent down to around $60, Bathe said.

    "Herding behaviour and a shift to net negative speculative positions should accelerate the price plunge," he added.

    Fund managers are divided over whether OPEC will reach an agreement on cutting output. Bathe put the likelihood at no more than 50%.

    The oil price has been falling since the summer due to abundant supply — partly from US shale oil — and low demand growth, particularly in Europe and Asia.

    As a result, some investors believe a small cut — of around 500,000 bpd — would not be enough to calm the markets.

    Doug King, chief investment officer of RCMA Capital, sees Brent falling to $70, even with a cut of 1 million bpd.

    If OPEC fails to agree a cut, prices will drop "further and quite quickly", with US crude possibly sliding to $60, he said. US crude closed at $76.51 on Friday, with Brent just above $80.

    Oil war

    With member states struggling to balance budgets, many OPEC countries will be pushing for an output cut.

    "Prices below $80 are putting significant strain on the cartel's weakest members such as Venezuela," said Nicolas Robin, a commodities fund manager at Threadneedle.

    He said a bigger cut — of 1 million bpd or more — was an "outlier scenario", but such a move would rapidly push prices above $85.

    "A move higher would likely be accelerated by the lack of liquidity owing to the US (Thanksgiving) holiday next week," Robin added.

    Doug Hepworth of Gresham Investment Management said: "A surprise significant cut, say of 2 million bpd, is needed to push prices back up to $80. And that would have to be accompanied by some new-found discipline in the non-Saudi members."

    The market has been awash with conspiracy theories as to why Saudi Arabia has not already intervened. New York Times columnist Thomas Friedman hinted at "a global oil war under way pitting the United States and Saudi Arabia on one side against Russia and Iran on the other."

    Tom Nelson, of Investec Global Energy Fund, said Saudi Arabia had allowed the price to fall to incentivise the smaller OPEC producers, which often rely on the biggest producer to intervene, to join Riyadh in cutting output.

    "They (the Saudis) want to cut but they don't want to cut alone," Nelson said, adding that a cut of between 1 million and 1.5 million bpd should be sufficient to balance the market.

    "The market really wants to see that OPEC is still functioning ... if there is a small cut, with an accompanying statement of coherence from OPEC that presents a united front, and talks about seeing demand recovery, and some moderation of supply growth, then Brent could move up to $80-$90."

    Oil prices could plunge to $60 if OPEC does not cut output - The Times of India
     
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  3. Kshatriya87

    Kshatriya87 Senior Member Senior Member

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    OPEC, an abbreviation for ??
     
  4. Srinivas_K

    Srinivas_K Senior Member Senior Member

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    Kshatriya87 likes this.
  5. Kshatriya87

    Kshatriya87 Senior Member Senior Member

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    Isn't it better for the people that the oil prices are cut by increasing the production? Doesn't this also mean that prices for all end products i.e. petrol, diesel, kerosene etc. will come down? I do not understand what market balance do they want. Billions will be happy if the constantly increasing prices for these items come down.
     
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  6. Kshatriya87

    Kshatriya87 Senior Member Senior Member

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  7. Compersion

    Compersion Senior Member Senior Member

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    What the analysis is saying is that the decrease in oil prices are not because we are becoming more efficient and using other alternative resources (like diversified electricity, bio-fuels, etc etc) and people travelling less and using more technology to communicate and do work and logistics improving but because:

    The cartel of (mainly) Islamic countries that are over supplying the market and they ought to reduce the supply. What about US Shale oil it must be unprofitable at this rate. Is the OPEC cartel making the US Shale oil industry suffer losses on purpose. Also low oil price is needed for economic recovery one would think. Also one would think people have the capability to do many other things:

    Navy powers model plane using fuel made from sea water

    Goodbye, Oil: US Navy Cracks New Renewable Energy Technology To Turn Seawater Into Fuel, Allowing Ships To Stay At Sea Longer
     
  8. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    Saudis are cutting their own throats their whole economy depends on oil over 80.
     
  9. ezsasa

    ezsasa Senior Member Senior Member

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    If initial media reports are To be believed, Saudis are willing to sustain the price cut for two years. At 80$ it looked like they were targeting shale oil in US. But at 60$ they should be able to shut down all local production of oil in every country. Once local industry shuts it become costly for countries to restart oil production.
     
  10. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    If oil is under 60 for two years expect a worldwide depression. Many industries depend on oil
    Chemicals , auto, energy etc...
     
  11. Bangalorean

    Bangalorean Stars and Ambassadors Stars and Ambassadors

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    Why would these industries suffer? I don't quite get the point. All industries that are consumers of oil should actually see a boom in sales. Automobiles, chemical, power generation (using oil), airlines, etc.
     
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  12. amoy

    amoy Senior Member Senior Member

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    Renewable energy development, solar panels among others, may be hit hardest by plummeting oil price. Overall speaking a gospel. Also a good timing for most countries to build up commercial inventories and strategic stockpile.
     
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  13. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    All raw material prices will rise . Lower supply same demand increases costs.
    If few people drilling they will not be drilling to lose money. Fewer petrochemical
    Pharmaceuticals etc...
     
  14. ezsasa

    ezsasa Senior Member Senior Member

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    Oil price per barrel in year 2000 was around 35$ , oil price in 2010 was around 75$ , may be it was time for market correction. This doubling up of prices helped the opec countries to fund the massive infrastructure build up in the region. But now it looks like infrastructure Boom is almost done, the question is why would they want to maintain the inflated oil prices?
     
  15. sgarg

    sgarg Senior Member Senior Member

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    Solar is the best way to prepare for wartime shortages of oil.
    My knowledge says oil never stays down for long. Something will happen (some event) and oil will be up again.
    Oil is key to Western system. A lot of Western companies make money from oil.
     
  16. sgarg

    sgarg Senior Member Senior Member

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    There is a temporary glut of oil. However you need to keep in mind that a lot of production becomes uneconomical at low prices. So new exploration and development will be hit hard.

    The glut may be artificial to drive new suppliers out of the market.
     
    Last edited: Nov 26, 2014
  17. amoy

    amoy Senior Member Senior Member

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    Indeed the price may rebound one day

    [​IMG]

    So take advantage of the low tide to make counter-cyclical procurements >>

    Petrodollars: China builds up its oil tanker fleet � The Barrel Blog
    By James Bourne | August 18, 2014 12:01 AM
    [​IMG]
     
  18. asianobserve

    asianobserve Elite Member Elite Member

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    Crude at $80 a Barrel? No Sweat, Say Oil Producer CEOs - Bloomberg

    If these American shale drillers can be profitable at these prices why are OPEC members claiming that $100 per barrel is fair price when we all know they have much lower production costs! They want to get rich at the expense of oil consumers. They should at least be more sensitive as the benefit should go both ways, to them and to consumers.
     
    Last edited: Nov 26, 2014
  19. sgarg

    sgarg Senior Member Senior Member

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    Most of oil profits goes to either Western companies or West propped regimes.

    So chances of a LONG oil slump is unlikely.

    It looks like a short duration glut which happens on commodity markets. It may be unrelated to Ukraine war.

    Saudi Arabia is not going to be interested in putting down Russia over Ukraine. These are stories made up by Western media. This is purely coincidental.
     
  20. asianobserve

    asianobserve Elite Member Elite Member

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    But Saudi Arabia is very interested in pressuring Iran into dismantling its nuclear weapons program. Due to the fact that oil prices are the same everywhere, Russia will be directly affected by Saudi actions.
     
  21. sob

    sob Moderator Moderator

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    As oil prices plunge, countries/companies will start shutting down oil wells which are not profitable. The production will come down automatically, though not to that level that OPEC would like.

    KSA is the big daddy and has a huge war chest to sustain a price war. Russia, Venezuela, Iran do not have the luxury of a price war.

    Good news for India, it gives us time to balance our books.
     

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