OPEC crude price range too high

OPEC will lose market share if it continues to insist on staying within its crude price range of $22 to $28 per barrel, Luis Giusti, former president of Venezuela’s state-owned oil company PDVSA, said Nov. 19 at Deloitte’s Second Annual Oil & Gas Conference in Houston, Texas.

“There’s no way they are going to micro-manage the market with that. It’s too high for them because they lose captivity,” said Giusti, current senior advisor for the Center for Strategic & International Studies.Giusti said that because of a market phenomenon known as “backwardation vortex,” caused by the Iraqi war, labor strife in Venezuela and other market jitters, OPEC has been playing “a smoke and mirrors game,” enjoying the double benefit of price and higher volume. “It is only a matter of time for the cartel to be forced to revisit the dilemma of high price versus market share.”Because OPEC’s price thresholds are out of whack with the broadly followed West Texas Intermediate benchmark, the average annual increase in worldwide crude demand of 1 million to 1.4 million barrels per day is being taken entirely by non-OPEC production, especially Russia.

“My guess is that in the long run, without abandoning its role as swing producer, OPEC will have to settle for a lower level of prices,” Giusti said, adding that the price for the OPEC basket should be around $20 per barrel “maximum.”