Submitted By BENOÎT FAUCON and SUMMER SAID
VIENNA—The Organization of the Petroleum Exporting Countries doesn’t see oil prices consistently trading at $100 a barrel again in the next decade, a pessimistic assessment that has the group considering the return of production limits to influence the market, according to people familiar with a recent strategy report.
The report predicted that oil prices will be about $76 a barrel in 2025 in OPEC’s most optimistic scenario, the people said, a reflection of the cartel’s worries that American competitors will be able to cope with low prices and keep pumping out supplies. It also contemplated situations where crude oil costs below $40 a barrel in 2025, the people said.
In a statement issued on Tuesday, the OPEC Secretariat “questions the factual accuracy” of the Journal’s reporting on its estimates for crude-oil prices and a return to a production quota system, saying such statements “have no basis whatsoever.”
“[M]uch of the referenced material is not mentioned by any document that the OPEC Secretariat is currently developing in collaboration with its member countries,” the statement said.
OPEC has been grappling with how to respond to a historic price crash caused in part by a surge in American supplies, thanks to hydraulic fracturing of shale formations deep underground. Normally, the cartel cuts its own production to reduce supplies, and thereby pump up prices, in times of market turbulence, but last year the group decided that wouldn’t work.
Instead, some OPEC nations, notably Saudi Arabia, have flooded the market with more crude and cut prices in hopes of keeping customers. In turn, OPEC officials have said the low-price environment could push out some expensive-to-produce oil, such as that from American frackers, whose costs are high.
Oil prices have rebounded in recent months, but many market watchers say the rally is likely to sputter. Monday, prices slipped as the U.S. dollar strengthened and investors eyed indications of weak demand. A stronger dollar makes oil more expensive for buyers outside of the U.S., potentially suppressing global demand.
The benchmark U.S. oil price on Monday fell 14 cents, or 0.2%, to $59.25 a barrel on the New York Mercantile Exchange, up 36% since mid-March but down 45% since June 2014. Brent crude, the global benchmark, fell 48 cents, or 0.7%, to $64.91 a barrel on ICE Futures Europe.
The price drop is of paramount concern in oil-producing nations that need petroleum cash to balance their budgets. Only two OPEC members—Qatar and Kuwait—can cover their planned government expenditures at $76 a barrel, according to data from the International Monetary Fund. Most members require prices to be well above $100 a barrel; Algeria needs them to be more than $130, according to the IMF.
The report was presented at an OPEC staff meeting in Vienna last week, the people said. The price forecasts could change ahead of the group’s highly anticipated gathering of ministers in June or before they are asked to approve a strategy report later this year. The oil price could go higher or lower between now and 2025, in OPEC’s estimation.
The report is expected to recommend that OPEC return to a production-quota system that it largely abandoned in 2011 after fights over how much each country would get to produce, according to people familiar with the document. OPEC members have been reluctant to agree to limits because it restricts their ability to attract new business and most ignored their quota.
PHOTO: HAIDER AL-ASSADEE/EUROPEAN PRESSPHOTO AGENCY
An Iraqi oil worker at the Rumaila oil field in Basra. Iraq and Saudi Arabia have been pumping record levels of crude.
Now, the likes of Saudi Arabia and Iraq are pumping record levels of crude in a bid to keep or gain market share.
The production-quotas scenario under consideration would allow the poorest members of OPEC to produce more. Though the report isn’t expected to mention any particular country, such a policy could make such members as Algeria and Venezuela more agreeable.
“The effect of a weaker, protracted soft market is stronger on some countries than others. So the remedy has to be targeted,” the report is expected to say, according to an OPEC official who has seen the draft.
If OPEC could be a more disciplined organization, it would have more power to influence markets, the official said.
“If they want to sustain the organization, they have no choice,” the official said, adding that any concession by stronger members would be temporary.
Under the draft OPEC strategy report’s recommendations, the quotas could kick in if OPEC’s share of the global market fell below its current level of 32%, officials said. The group once produced more than half the world’s oil.
“At one point, OPEC won’t agree to go lower,” the OPEC official said.
The draft report also recommends that OPEC plan a robust response to United Nations climate-change talks. The next talks will be in Paris in December. The cartel will argue that new environmental regulations shouldn’t withhold energy revenues from developing countries.
“OPEC members don’t want to suffer from environment regulations that hurt their revenue,” one attendee at the presentation said. The draft report recommends “OPEC members must aggressively participate in these discussions to limit their negative effects and should have a common stance,” the person added.
In the past, OPEC nations have sent their environment ministers to climate talks to adopt conciliatory positions. Now, OPEC is considering sending oil experts as well, officials said, and plans to argue that oil and gas help reduce poverty around the world.
To mitigate climate change, OPEC will offer cleaner ways to produce oil, the attendees at the presentation said.
Write to Summer Said at email@example.com
Corrections & Amplifications:
While The Wall Street Journal saw extracts of a document shared at an OPEC strategy presentation, the Journal didn’t see an OPEC price forecast of $76 a barrel in the document. The price forecast was described by people familiar with the document. An earlier version of this article incorrectly suggested the Journal had seen the OPEC price forecast in the document.