Globally the main question for the oil sector is whether or not OPEC is going to cut production. Oil...
Globally the main question for the oil sector is whether or not OPEC is going to cut production. Oil prices are expected to remain stable until global growth picks up. It is not anticipated that oil prices will rise.
Robert Parker, deputy chairman of Credit Suisse Asset Management, says: 'We expect OPEC will not cut production unless the price falls to $17. OPEC already has a spare capacity of five million barrels a day and is loathe to cut further production as this will only increase capacity.
'Inventories are very high compared to three months ago and it is expected demand will continue to be weak over the next three months. Oil prices will remain on the soft side until there is a global turnaround next year.'
Parker says there are three factors that are affecting oil prices. First, the high inventory levels; second, weakening of demand such as fewer airlines flying; and third, non-OPEC producing capacity.
Parker explains if prices go down to $17 or $18 a barrel, OPEC will start to reduce production. Credit Suisse Asset Management is currently focused on Brent North Sea crude that is priced around $21.
John Payne, global emerging markets strategist and head of the resource team at Baring Asset Management, says: 'OPEC has brought stability to the market place. We expect oil prices to remain stable over the next six months and to reach $22 to $25 a barrel. Although there may be periods that oil prices dip below this figure it will be for a very short time. It is unlikely oil prices will spike higher unless something political happens.'
Payne explains oil prices initially spiked following the attack of 11 September, but have since come back down. He agrees it is very unlikely that oil prices will go higher as consumption is slowing and refineries do not need as much crude oil.
Baring Asset Management is focused on the Middle Eastern states. Payne says: 'What the market is looking for now is how OPEC will manage itself when political tensions are higher.'
For OPEC countries oil is a major source of revenue and the majority of these countries have large fiscal deficits. One way of resolving these countries' deficit problems is through oil. A higher or stabilised oil price is one way of achieving this. If oil prices fall sharply it could effect these countries' economies.
Parker gives the example of Saudi Arabia as one of OPEC's strongest producers of oil. If oil falls lower than $17 it would have a negative effect on the economy as the country exports 90% of its exploration.
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