RBC: If oil prices fall further, OPEC will act

Helima Croft, RBC Capital Markets’ head for global commodity strategy, said today that OPEC could take action if the oil price decline continues.

Croft stated that OPEC is content to maintain its current production policy, and was not seeking to get into a confrontation with Russia or the West. “Nevertheless, we see ample opportunity for OPEC’s adjustment of the production cut.”

OPEC+ reached an agreement on production cuts in 2017 after the 2022 oil price rally slowed and concerns about demand drove benchmarks lower. The reduction, which was formally set at 2,000,000 bpd from collective production quota but is actually half of that, should remain in effect until the end.

But the Saudis have shown repeatedly that they are open to rapid changes in policy. RBC’s Croft said to the AFR that the RBC has noted the willingness of Energy Minister Abdulaziz bin Salman to “make quick course corrections to ensure market stability, and protect national interests”.

RBC predicts Brent crude will average $96 per barrel in 2015, while West Texas Intermediate will average $92 per barrel. Both benchmarks currently trade below $80 per barrel.

RBC’s Croft shared her expectations for OPEC’s price action. This was in line with Scott Sheffield of Pioneer Natural Resources, who earlier this week stated that oil would not be allowed to remain at $75 per barrel.

Sheffield stated that Saudi Arabia isn’t going to allow Brent to stay at $75 per barrel. He also said it wouldn’t surprise him if they had another cut.

Sheffield forecasts oil prices at $80 per barrel, with the potential to rise to $150. This is in addition to other forecasters who expect higher oil prices this coming year despite a weak start.

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