OPEC clamours for $50pb oil

Organisation of the Oil Exporting Countries, OPEC, is privately thinking about bringing oil price to a $50 per barrel equilibrium, says one of the industry’s leading forecaster.

In an interview with Reuters, the founder, Executive Chairman and chief oil soothsayer at New York-based consultancy PIRA, Gary Ross, said oil should recover to $50 a barrel by the end of the year which he said will be as a result of cuts from OPEC.

“They want $50 oil, this is going to become the new anchor for global oil prices,” said Ross, one of the industry’s most respected forecasters for his bold price predictions and decades-long history of consulting with OPEC members.

“While it may not be an official target price, you’ll hear them saying it. They’re trying to give the market an anchor.”

If Saudi Arabia and other OPEC members want $50 as “fair price for producers and consumers”, it could mean the end of a period when the group were lazy about managing the market.

After years of signaling satisfaction with prices hovering at around $100 a barrel, top exporter Saudi Arabia in late 2014 led OPEC in its most dramatic policy shift in decades. This means that OPEC does not have to agree to cut their own production to support such high prices. Instead, the group could keep increasing supply into the market and allow prices to fall.

In his note to clients, Ross also pointed to the recent agreement between major OPEC members and leading non-OPEC producer Russia to “freeze” production at January levels as a factor boosting market sentiment after a brutal period when the only safe trade seemed to be sell.

The agreement will do little to curb immediate oversupply, especially with Iran exports still swelling after the end of sanctions. Still, working together on “verbal intervention” was a positive start that “could lead to eventual cuts” after a period in which Saudi Arabia and Russia made little effort toward any kind of cooperation, he said.

“Russian production is going down anyway, why not agree to a freeze and then cuts?” Ross told Reuters.

The $50 figure was in line with analysts’ consensus for 2017 U.S. prices, according to the last Reuters poll, although much higher than the $38 a barrel median for this year.

Ross, whose forecasts are not normally made public, was among the few analysts to anticipate OPEC’s decision to let prices fall in 2014.

While he was wrong-footed in the first part of last year, when crude’s rebound to around $60 a barrel proved temporary, he joined others such as Goldman Sachs in taking a much more bearish view in more recent months, predicting in December that U.S. crude would drop below $30 a barrel in February.

Ever since the market detached from the $100 a barrel figure that anchored it from 2010 to 2014, analysts, traders and executives have struggled to pinpoint where it might ultimately settle, agreeing only that it would be a period of extraordinary volatility in the absence of any overt OPEC guidance.

Officials from less influential members such as Venezuela or Angola have occasionally referenced specific prices, generally in the vicinity of $70 to $80, but the bigger Gulf producers have largely avoided any public mention of a new reference point, leaving the market adrift.