The OPEC+ spat is likely to be resolved ‘sooner rather than later,’ energy analyst says

Conflict in OPEC

An OPEC sign hangs outside the OPEC Secretariat in Vienna, Austria, on Nov. 29, 2017.

Akos Stiller | Bloomberg | Getty Images

Russia is reportedly attempting to negotiate a resolution.

Neil Beveridge, a senior oil analyst at Bernstein, said OPEC policy has been focused on controlling supply to manage prices.

But the UAE sees that peak oil demand is “staring OPEC in the face” and is considering chasing market share instead of high energy prices, he told “Capital Connection” on Thursday, and that’s why it wants to be given a higher quota.

$50 oil versus $100 oil

Observers say two scenarios are possible if OPEC doesn’t reach a new deal. The first is that of a price collapse.

Beveridge noted that OPEC is sitting on nearly 6 million barrels of spare capacity now. If countries decide to increase supply and go for market share, the downside could be “significant,” he said.

“We can see oil prices certainly drop back below $50 again … pretty quickly, if that [happens],” he said.

Why mess around with, potentially, a price war?

Stephen Schork

The Schork Group

The second scenario is one where countries continue to produce oil according to the quotas that were previously agreed on. Oil prices would spike, possibly as high as $100 per barrel, with demand outpacing supply.

OPEC probably doesn’t want to rock the boat in either direction, according to Schork.

“They are in a very nice position at this point,” he said. “Why mess around with, potentially, a price war?”

On the other hand, too-high oil prices are not ideal. “The higher we go, you’ll start to hear the political winds turn against them, especially here in the United States,” he added.


Schork said he believes the UAE will be allowed to increase production, and the country will stick to their quota.

“They just want a bigger share of OPEC’s prize,” he said.

Bernstein’s Beveridge, however, said there is a risk that other OPEC+ members will want to raise their production quotas.

“That could lead to a whole unravelling of the OPEC agreement that we have … and that would certainly point to very significant downside [for] prices,” he said.

The deal only works if everyone is committed to it, he said, but noted that there has been “very good compliance” from OPEC members over the last 12 months.

In the long term, Schork said the oil-producing alliance would benefit from the energy transition.

“As western oil companies trip over themselves in the years ahead — and they’re already doing it now — to decarbonize, OPEC’s share of the global oil market is going to continue to grow,” he said, adding that oil demand is likely to increase until the end of the decade.

“It behooves all players on the OPEC side to play nicely, so yes I do think we’ll see a resolution to the situation sooner rather than later,” he said.

— CNBC’s Sam Meredith, Weizhen Tan and Dan Murphy contributed to this report

Source: CNBC