Oil market analysts say the current policy adopted by the Organization of the Petroleum Exporting Countries (OPEC) is very likely to lead to further slump in global oil prices, a new report says.
Analysts say OPEC's policy of maintaining high oil production risks mounting more downward pressure on oil prices, especially with Iranian crude set to enter the global marketplace, AFP reported.
"The ongoing supply surplus should continue to exert heavy pressure on oil prices in the short term," said Fawad Razaqzada, analyst at Gain Capital trading group, adding, "This could force some weaker (non-OPEC) oil producers out of the market," resulting in tighter supplies next year.
Though lower prices will reduce the revenues of OPEC’s member states, cheap crude oil may result in decreased production by non-OPEC nations, helping countries like Saudi Arabia preserve their market share.
During its recent meeting in Vienna last Friday, the Organization of the Petroleum Exporting Countries decided not to slash the organization’s oil output despite sliding prices at a time that Iran is expected to increase its production next year.
OPEC also did not reveal its precise collective output target in Friday's final communiqué.
"In our view, the lack of guidance on a production quota underlines the discord among members," said Barclays analyst, Miswin Mahesh.
"Past communiqués have at least included statements to adhere, strictly adhere, or maintain output in line with the production target. This one glaringly did not,” he added.
Since last year, OPEC, whose members together pump out more than one third of world oil, has consistently struggled to keep production at a target of 30 million barrels per day.
Although oil prices have slipped by more than 60 percent in past 18 months, Saudi Arabia and Persian Gulf state members of the organization are defying calls to reduce output, alleging that they aim to preserve market share and fend off competition from non-OPEC and world-leading producers, Russia and the United States.
OPEC's policy of "keeping high production and keeping prices under pressure has taken more time" than it would have expected, Natixis bank analyst, Abhishek Deshpande, told AFP on the sidelines of the recent OPEC meeting in Austrian capital, Vienna.
Before OPEC convened its meeting in Vienna, Iran’s Minister of Petroleum Bijan Zangeneh wrote a letter to OPEC, calling on the organization to cut its production by 1.3 million barrels a day.
In his letter to OPEC Secretary-General Abdullah al-Badri, the Iranian minister asked the organization to stick to its output ceiling of 30 million barrels per day (bpd), saying, “Currently, the output ceiling has to stand at 30 million bpd but the production has reached about 31.3 million bpd.”
“This is while it is clear which countries are producing above their quota…. Crude production by certain countries has increased so much that it has surpassed the ceiling,” he added.