With OPEC production plans for the year ahead agreed in late November, the oil markets have returned to their usual preoccupation with short- term pricing. Markets rose slightly on the strength of OPEC’s fixing of its production ceiling for 12 months but prices had started to soften by the end of November. Weather throughout the month was exceptionally mild, depressing demand for heating fuels. A supply threat posed by Brazilian oil workers was lifted when their strike ended unexpectedly on 25 November.
OPEC’s quota fixing policy is not expected to have much impact on pricing for the rest of the year but could have some influence in 1995 if demand rises as expected. The extent of that influence will depend on the scale of any quota violations and the rise of non-OPEC production, analysts say.
OPEC may choose to revise production quotas in June if prices are not rising strongly enough, according to Kuwaiti Oil Minister Abdel-Mohsen al-Mudej. ‘OPEC has an extraordinary meeting in June in Vienna. If we find prices below our expectations, we have to review our markets,’ Al-Mudej said on 25 November, according to Reuters.
Support for the logic of the OPEC constant production policy has come from the Washington-based Petroleum Finance Company (PFC) in its November review. PFC says that a surge in non-OPEC output will match the seasonal upturn in demand during the winter and that the demand for OPEC oil should remain flat as a result. PFC estimates average OPEC production at 25.13 million barrels a day (b/d) in November which is nearly 600,000 b/d above the agreed ceiling of 24.52 million b/d.
Despite this, the OPEC basket price edged upwards by $0.15 a barrel in November, according to PFC. It puts the November spot price for the OPEC basket at $16.69 a barrel and OPEC earnings in the year to date at $111,750 million, about $4,000 million lower than at the same stage last year.