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29 Sep 2016


OPEC Unexpectedly Agrees on Production Cut (Current Issue No. 2781)

The Organization of the Petroleum Exporting Countries (OPEC) resolved on the sidelines of a major energy conference in Algeria, September 26-28, 2016, to collectively cut oil production to a range of 32.5-33.0 million barrels/day.
We at KResearch expect that, if OPEC is able reach a deal on a collective production cut to 33.0 million barrels/day during their upcoming formal meeting in late November, the average Dubai crude oil price will likely remain at USD48/barrel, as projected for 2017. However, if OPEC is able to settle on a cut to 32.5 million barrels/day, the average Dubai crude oil price may climb to USD50/barrel in 2017, but close attention must be paid to new shale oil supplies coming into the market elsewhere.
Uncertainties surrounding the new OPEC output ceiling also warrant close monitoring ahead because many member states, e.g., Iran is targeting an increase in its oil output at the pre-sanction level of 4 million barrels/day. Venezuela may be less inclined to cooperate given their current financial crisis, and Libya and Nigeria may want to bolster their outputs into the global market as political instability there begins to ease. In addition, it remains to be seen whether major OPEC members, i.e., Saudi Arabia and Iraq, will successfully agree to production cuts, and non-OPEC producers, especially Russia, will truly cooperate with OPEC.

The projected increase in crude oil prices would inevitably drive up refined petroleum product prices in Thailand and, in turn, the cost of living, including transportation. The transportation sector will likely be the most vulnerable to such pressure since fuel costs normally make up the largest proportion of its operating expenses. Related businesses are advised to monitor oil price movements and have contingency plans in place to cope with rising oil prices, going forward.