Organization of Petroleum Exporting Countries to hold at $40 crude as key meeting looms in Vienna

It will take more than $40 crude to make the Organization of Petroleum Exporting Countries (Opec) change its mind, analysts said before the group’s December 4 meeting in Vienna.

In the year since Opec chose to defend its market share, and let prices sink, a 44% plunge in crude has slashed members’ revenues by almost half a trillion dollars.

Undeterred, the group will press on with its strategy to batter rival producers when ministers meet next week, according to analysts.

Saudi Arabia, Opec’s biggest member, appears determined to see through its plan to eliminate a supply glut by squeezing out competitors such as US shale drillers, even as the resulting price collapse spurs dissent from Venezuela, Algeria, and Iran.

The kingdom’s tactic is “having the intended effect” as non-Opec supply heads for its steepest retreat since the fall of the Soviet Union, according to the International Energy Agency.

“There’s no reason to expect any change of heart,” said Antoine Halff, a senior fellow at the Center on Global Energy Policy at Columbia University.

“The strategy is working out, it’s just not solving the problem overnight.”

For some Opec members, opposed to the kingdom’s plan since they unveiled it last November, the cost has been too high.

Venezuela, facing a 10% economic contraction this year that would be the steepest in the world, has repeatedly called for a crisis summit.

Oil prices may drop to as low as the mid-$20s a barrel unless Opec takes action to stabilise the market, Venezuelan oil minister Eulogio Del Pino said on Sunday, advocating the group adopt an “equilibrium price” of $88 that would cover the cost of new investment in production capacity.

Brent crude, the benchmark for about half the world’s crude, closed as low as $42.69 a barrel in August, the weakest in more than six years.

Prices have lost about 44% in the past 12 months and were trading at $45.28 yesterday.

Yet even as prices languish below levels most members need to balance their budgets, the initiative failed to win the backing of the group’s dominant Gulf-based producers.

While Saudi Arabia is not immune to the crisis, which forced it to burn currency reserves and tap bond markets to plug a 20% budget deficit, the kingdom still has enough financial firepower to see the strategy through.

“Saudi Arabia is the chief architect of Opecs new policy, and despite calls by other members to reconsider, we expect them to remain steadfast,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas.

One change ministers could agree is an increase in the group’s output target as Indonesia rejoins after a seven-year hiatus.

There may be more to discuss regarding Iran’s ambitions as it aims to revive oil exports once sanctions are removed following a nuclear accord earlier this year.