PORTLAND
MARKET
REPORT
“OPEC IS STILL UNIFIED BY
ONE THING AND THAT IS
A DESIRE TO SEE HIGHER
PRICES FOR THEIR OIL”
January update
Cast your mind back to November 2014 and
OPEC’s annual summit in Vienna. At that
meeting and despite glutted world oil markets,
the cartel took the brave decision to maintain
maximum output in an attempt to preserve
market share for their oil. The impact of this
decision on an already bearish oil market was
devastating for OPEC members, with prices
immediately falling an incredible $6/bbl on the
back of the announcement. The crude price
which had hitherto been at the $80 mark,
went on to fall a further $35 over the next
year. But even after that, at the same meeting
12 months later, OPEC once again voted to
maintain maximum production levels and
prices once again dropped off.
By November 2016 however and with no-
end in sight to the low price environment, the
will of OPEC was finally broken and the cartel
gave up on their official policy of maintaining
market share. Instead they announced the
implementation of a production cap of 32.5m
barrels per day (bpd) in an attempt to try and
force oil prices back up. Now of course OPEC
policy is not the only factor that drives prices
up or down, but the fact remains that since the
November 2016 announcement, prices have
indeed risen from $45/bbl to circa $65/bbl at
the time of writing this report. Which means
in OPEC’s eyes at least, the introduction of a
production cap was the right decision to take.
Dominating OPEC policy are the Saudis
and their allies (UAE, Kuwait). These member
states are typically viewed through western
eyes as the “good guys” – basically benign
(to the West at least) dictatorships that have
demonstrated their willingness to prioritise
sales of oil to Europe and America, above
other regions of the world. More importantly
is the fact that the Saudi “coalition” has by far
the greatest levels of production and thus the
greatest ability to practically influence OPEC
strategy. Saudi Arabia alone produces a third
(10m bpd) of the cartel’s total production and
is also the only member that has the ability
to significantly increase production at short
no