OPEC Quota Roll-Over Sparks Crude Price Surge

Strategic Insights -

The Organization of Petroleum Exporting Countries' (OPEC) decision to roll over its current quotas has sent crude oil futures prices soaring on the New York Mercantile Exchange (Nymex). The price of crude oil climbed to a two-month high on the back of follow-through buying, driven by short-covering and technical factors. However, the rally is expected to slow down as traders consolidate gains, citing a decline in the December crude contract by 28 cents per barrel at the end of the day.

Key Takeaways:

  • The crude contract for Dec 1995 deliveries closed at $18.57 per barrel, up 38 cents, on Nov 16, 1995.
  • The January 1996 crude contract closed up 22 cents at $18.13 per barrel.
  • Much of the buying was driven by short-covering and technical factors, but prices also received a boost from cold weather, a European oil embargo against Nigeria, and tussles between Brazilian oil workers and Petroleos Brasileiro (Petrobras).
  • Sources indicated that the two-day rally late last week, which saw December crude rise by 64 cents per barrel and January by 50 cents, will likely slow down.
  • Analysts predict that OPEC will maintain its current production ceiling of 24.52 million barrels per day (b/d) unchanged.
  • Venezuela is the number one quota-buster within OPEC, producing 2.75 million b/d, 390,000 b/d above its OPEC quota of 2.359 million b/d.
  • The long-term outlook for crude prices remains bearish due to rising non-OPEC production and OPEC over-production.

Statistics:

  • Crude contract for Dec 1995 deliveries closed at $18.57 per barrel, up 38 cents from the previous day.
  • Dec 1995 crude contract spiked to a daily high of $18.85 per barrel.
  • January 1996 crude contract settled up 22 cents at $18.13 per barrel.
  • OPEC current production ceiling: 24.52 million b/d (since September 1993).
  • Venezuela's current OPEC quota: 2.359 million b/d.
  • Venezuela's actual production: 2.75 million b/d (390,000 b/d above quota).

Sources:

  • Associated Press (Nov 16, 1995)
  • Reuters (Nov 17, 1995)
  • Refco Inc. analyst Victor Yu
  • Kleinwort Benson Securities analyst Mehdi Varzi
  • Kleinwort Benson Securities