Opec intervention seen as fading force

The Organisation of Petroleum Exporting Countries (Opec) has stepped in with 500,000 extra barrels of oil a day to calm global markets but the cartel may not have the power it used to have to provide respite for investors.

The increase will begin on 1 November but analysts believe that the oil export growth from non-Opec countries such as Russia, Venezuela and Iran has diluted the effectiveness of a sudden surge of extra oil from the Opec nations.
This will render the cartel powerless to calm the global economy. Opec accounts for around 40% of global output but ten years ago it accounted for over 70%.

Yet Opec’s move to cut the oil price, stimulating the global economy and calming markets, must still be viewed as an inherently positive sign for global markets, according to Jacob De Tusch-Lec, co manager of the Artemis Capital fund.

He said: ‘Opec has done well out of the US consumer but knows it cannot afford to kill them off. If the oil price falls by 5% because of this latest action, it would be no bad thing and could give a boost to global growth when it is most needed.

‘If someone had said three years ago that the oil price would be as high as it is today, they would not have been believed, but the global economy has remained strong despite the high oil prices.’

Credit Suisse investment analyst Philipp Vorndran said the move is a clear attempt to quieten nervous markets but agrees that it has less significance than it would have done a few years ago.

Citywire