The Organisation of Petroleum Exporting Countries (OPEC) is expecting to leave oil production levels unchanged at 30 million barrels per day despite concern, in some quarters, that the oil price is well below US$100 per barrel. Saudi Arabia wishes to preserve the low oil price in order to undermine the US shale industry. Oil currently stands at US$64pb. A level OPEC member such as Iran, Iraq and Venezuela are put under financial strain due to their lack of foreign currency reserves to buffer their economy from falling revenue.
OPEC, which controls 1/3rd of world oil production, effectively triggered a price war last November aimed at winning back market share from shale drillers in the US. Oil production from shale in the US has fallen due to the decline in the number of oil rigs. Since November, 784 oil rigs have stopped pumping. However, contrary to expectations, the highly indebted and price sensitive US shale oil industry has yet to capitulate. The rig count may have halved but output has held up despite Saudi Arabia’s actions. Around the world, established oil reserves are being used up signalling that demand will soon start to rise. On the basis of falling supply and higher consumption in Europe, OPEC has revised upwards it forecast for world oil demand.
Oil prices have rallied from their low point of under US$50pb in November to around US$64pb in mid-June. The main reason for this six month rise is the positive growth in Europe. However, this mini-rally in oil prices and other industrial commodities is seen by leading investment banks as running ahead of the economic reality. Oil is up 31% and copper up 60% but world growth is only just rising.