OPEC decided to hang on to its "bullets" on Sunday by not changing its output level, however, the global oil market is expected to tighten as supply from some major producers is set to decline, analysts told Anadolu Agency.
OPEC and Russia decided Sunday in Algeria not to change their production levels, which has created some supply concerns in the global market and pushed crude prices higher this week, with Brent climbing to almost $81 a barrel on Monday -- its highest level since November 2014.
OPEC and non-OPEC oil producers had decided in June to boost crude production by around 1 million barrels per day (bpd) in an attempt to push oil prices higher, and keep global supply steady, especially amid declining output from Venezuela and the possibility that Iranian exports could diminish due to U.S. sanctions.
However, the meeting on Sunday was based on different premises. The oil cartel wanted to wait for the right time to raise output, according to senior market analyst Phil Flynn from Chicago-based futures brokerage firm, Price Futures.
- 'Keeping bullets in holster'
"If they [had] increased [output] in the weekend, [then] when they really need one in December they wouldn't have the capacity to bring it in time. So, they wanted to keep their bullets in their holster for a more effective time in the market. That's why they hold on to it," Flynn told Anadolu Agency.
"They want to keep their powder dry and not announce a premature increase in production, because they are running out of ammunition. They don't have a lot to bring on, and if they bring on too soon, it may backfire," he explained.
According to Flynn, it is almost certain that OPEC and Russia will decide to increase their production when they meet Dec. 3 in Vienna, especially if Iranian sanctions are in place, by 500,000 to 1 million bpd.
"OPEC and Russia has no production spare capacity to speed up ... So, we're gonna see one of the tightest oil markets we've seen probably in over a decade," he added.
- US output expected to rise
Michael Lynch, president of economic consultancy Strategic Energy & Economic Research (SEER) in Massachusetts, also believes OPEC and Russia will raise their production levels on Dec. 3.
"They're going to anticipate lower production from Venezuela, as well as lower exports from Iran, and that will encourage them to increase their quotas," he said.
"Iranian exports seem to have dropped off faster than people expected. [This] is making people worried that the next few months could see a tighter market," he added.
Lynch expects U.S. oil production to increase by 600,000-700,000 bpd next year, coming mostly from shale plays and the Gulf of Mexico.
It has become more struggling to get crude out of the most prolific shale region in the U.S.' Permian basin, due to pipeline capacity reaching its limit, but Lynch believes "some fields coming online should raise production."
"You're seeing strong increases in the Bakken and the Eagle Ford right now, so even if the Permian flattens out next year and shows no growth, then we'll still see at least about half a million barrels per day increase for the country as a whole," he said.
- Brent may average up to $95 a barrel next year
The two experts, on the other hand, diverged in their oil price forecasts for 2019 and the reasons about how the prices would move.
Lynch thinks Brent is going to stay above $80 a barrel through the end of the year. "And, next year, we'll see some weakness partly because I'm a bit pessimistic about the global economy. I think it will be more because of low demand."
He expects oil prices to average $70 to $75 per barrel for 2019.
Flynn, on the other hand, thinks the global oil demand is going to be "a lot stronger than people think".
"Next year, we are going to see spare production capacity in globe to evaporate. And we're going to see the biggest supply squeeze that we've seen in a long time. Underinvestment in traditional oil products is going to start becoming very apparent in the new year. It's going to increase prices in the new year," he said.
Flynn estimates global demand to surpass 100 million barrels a day in 2019 on average, adding increased production on the part of OPEC and Russia would not be enough to meet this demand due to sanctions on Iran and declining production in Venezuela.
He concluded by saying that he expects Brent crude to average $84 a barrel this year and $95 per barrel in 2019, with American benchmark West Texas Intermediate averaging $85 a barrel next year.
According to OPEC's Monthly Oil Market Report for September, total world oil demand in 2019 is now projected to surpass 100 million bpd for the first time and reach 100.23 million bpd.
By Ovunc Kutlu