Opec, an organisation of 14 oil-producing countries, is expected to discuss easing its oil output, a move that could see a slump in oil prices.
NKC African Economics senior economist Elize Kruger yesterday said that with fuel price hikes in excess of R2 per litre in petrol and diesel over the past three months, South African consumers were feeling the strain.
“We should hold thumbs that the Opec and non-Opec partners agree to pump more oil, as it will alleviate the current tightness in the global oil market and should result in lower oil prices,” said Kruger.
She added that any decline in global prices would offset the negative impact of a weaker rand on local fuel prices.
Jameel Ahmad, the global head of currency strategy and market research at forex broker FXTM, said that it was difficult to project how much more downside there could be on the cards for the oil markets if Opec confirmed an increase in production output.
Ahmad said that the West Texas Intermediate - a specific grade of crude oil used as a benchmark in oil pricing - declined by nearly $10 (R136.63) in less than a month on the back of the speculation that Opec could decide to further curtail its output.
“It is important to point out that a primary factor behind the $10 decline in the value of oil over the past month has been due to reports that there could be an increase in production of around 500000 barrels per day.
"Unless the outcome is confirmed at this exact level, I would say that the move is already priced in,” Ahmad said.
“It would likely take a much larger increase in production than the reported levels to send the price of oil sharply lower than its current levels, between $63 and $64.”
Ahmad added that the anticipation of a drastic shift in Opec’s mindset was puzzling.
This particularly in light that the previous theme heading into Opec meetings was how much production output could be cut from the market.
“This focus has suddenly been replaced with anxiety over how much supply could potentially be added back into the market,” he said.
Ahmad added that the expected increase in oil output could be an indication of “a rebalancing” after years of an overwhelming oversupply.
But it could also be a sign that some of the Opec members no longer wanted to be part of the oil grouping’s production cut deal.
- BUSINESS REPORT