OPEC  ended its 27 Nov meeting without cutting production quotas and maintained  its  collective  ceiling  at  30mpbd.  Crude  oil  prices  have slumped by 30% since mid-June and  we expect,  at worse,  another 10-15% slide  –  which would drop prices to  USD65-70/bbl until the end of the  year.  Over  the  next  12-24  months,  we  expect  to  see  the  range  ofcrude  oil  prices  rise  to  USD90-100/bbl,  with  1Q15  being  the  lowest period. We also anticipate crude oil prices to pick up again in 2H15.

Organization of Petroleum-Exporting Countries (OPEC) ended its 27 Nov  meeting  without  cutting  production  quotas.  Its  collective production  ceiling  was  also  maintained  at  30  million  barrels  per  day (mbpd). Seretary-general Abdalla El-Badri said that OPEC will abide by its target  as it seeks a “fair” price of oil. OPEC’s daily  production was at 30.97mbpd in October,  which exceeded  its collective target for the fifth month. (Source: Bloomberg, 27/11/14)

Our take: With no production quota cuts, we can expect  crude oil prices to  slide  further  over  the  short  term.  However,  after  prices  slumped  by30% since mid -June, we expect  –  at worse  –  them to slide by  another 10-15%, which would put them at around USD65-70/barrel (bbl)  until the end of the year. We believe that should OPEC abide by its production quota, it  should rein in member countries that are producing in excess of its  production  quota.  That  alone  would  lower  total  world  supply  by c.1mbpd. 

We maintain our view  that  crude oil  prices will most probably declineuntil something tangible happens to the  supply  of  or demand for crude oil.  The main  premise  for  our  bullish  expectation  for  crude  oil  prices  is that in order for the world oil supply to  meet future demand, the highercost producers will have to be able to be viable as well. If crude oil prices do  not  rebound  over  the  short  term,  they  would  rebound  over  the medium and longer terms  –  either through a decline in  supply (eg  shale oil  producers are no longer viable or OPEC cuts production) or  when the global  demand for  crude  oil  slowly recovers. We  are  banking  more  on the  reaction  of  suppliers  –  as  it  would  be more  controllable  –  than  on demand  as  there  are  many  variables  that  cannot  be  controlled  in  the latter. We expect crude oil  to trade in a range of USD90-100/bbl over the next  12-24  months,  with  1Q15  being  the  lowest  period.  We  also anticipate crude oil prices to pick up in 2H15.

Source: RHB