OPEC giant split set to occur at next meeting

When OPEC next meets in Vienna on November 27th, don’t be surprised if there is a giant acrimonious split between those who want oil production reduced and those who don’t.

Some countries, like Venezuela, Russia (non-OPEC) and Iran will soon go bust if oil prices fail to increase. Since June 2014, the price of crude oil has plummeted by more than 30%. Venezuela, for example, gets more than 95% of its export revenue from oil.

The world’s largest oil producer, Saudi Arabia, on the other hand, will want to keep pumping in the hope that shale oil and gas companies in the US lose out as their margins are squeezed.

According to Iranian Mehr News, Iran will propose that OPEC cuts its production by 1 million barrels per day to push up prices. The newspaper says Iran’s Oil Minister Bijan Namdar Zanganeh and his Saudi counterpart Ali Al-Naimi will have to confer on the sidelines at the next OPEC meeting in Vienna and see whether they share any common ground.

Analysts in North America and Western Europe are split on how they predict the meeting will go. Half believe OPEC will agree on an output cut while the other half predict the group will not deviate from its 30 million barrels per day target.

Last week, Brent crude dropped to below $80 a barrel, sparking speculation that OPEC may have no option but to turn down the pumps to get rid of the surplus supply. The number of diplomatic meetings among OPEC members has increased considerably ahead of the group’s meeting.

Thirty-percent of global oil production today comes from OPEC, which is a fraction of what it was decades ago.

Mr. Al-Naimi said on November 12th in Mexico that Saudi Arabia is committed to seeking price stability. Venezuela’s OPEC representative, Rafael Ramirez, has visited Russia, Iran, Qatar, and Algeria. Mr. Zanganeh has been to Kuwait, Qatar and the United Arab Emirates.

According to Mehr News, Mr. Zanganeh will likely meet with Russia’s Energy Minister Alexander Novak. Russia is not an OPEC member.

Shale oil has turned the tables

Shale oil and gas production in the United States have completely turned the tables as far as the global oil market is concerned. The US is set to overtake Saudi Arabia soon as the largest producer of oil in the world.

As soon as the law is changed in the US, allowing it to export oil, OPEC’s 40-year dominance will be virtually gone. Canada is following close behind and will see a massive increase in oil exports as soon as certain pipeline proposals are approved.

There is bound to be a bitter quarrel at the next OPEC meeting, mainly between the cash-rich and cash-strapped members, i.e. between those who can sit this out and those who don’t have the luxury of time.

The Saudi’s have told OPEC members not to panic, explaining that very low oil prices may work in their favor. They believe that US shale producers will soon go bust if prices remain low, which will eventually lead to rising prices again. The Saudis say US producers need oil to be above $70 to $80 a barrel in order to be able to make a profit.

The following countries are OPEC members: Venezuela, United Arab Emirates, Saudi Arabia, Qatar, Nigeria, Libya, Kuwait, Iraq, Iran, Ecuador, Angola and Algeria.

Video – OPEC is in trouble

In this video, Saxo Bank’s Ole Hansen says OPEC as we know it is in trouble. He explains what he thinks is likely to happen in the oil markets over the next few days and weeks.