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 Brent crude futures have fallen 34 percent since June to touch a
four-year low of $76.76 a barrel on Nov. 14, and could tumble
further if OPEC does not agree to cut at least 1 million barrels per
day (bpd), commodity fund managers say.
"The market would question the credibility of OPEC and its influence
on global oil markets if there was no cut," said Daniel Bathe, of
Lupus alpha Commodity Invest Fund.
That could send Brent down to around $60, Bathe said.
"Herding behavior and a shift to net negative speculative positions
should accelerate the price plunge," he added.
Fund managers are divided over whether OPEC will reach an agreement
on cutting output. Bathe put the likelihood at no more than 50
percent.
The oil price has been falling since the summer due to abundant
supply -- partly from U.S. shale oil -- and low demand growth,
particularly in Europe and Asia.
As a result, some investors believe a small cut -- of around 500,000
bpd -- would not be enough to calm the markets.
Doug King, chief investment officer of RCMA Capital, sees Brent
falling to $70, even with a cut of 1 million bpd.
If OPEC fails to agree a cut, prices will drop "further and quite
quickly", with U.S. crude possibly sliding to $60, he said. U.S.
crude closed at $76.51 on Friday, with Brent just above $80.
"OIL WAR"
With member states struggling to balance budgets, many OPEC
countries will be pushing for an output cut.
"Prices below $80 are putting significant strain on the cartel's
weakest members such as Venezuela," said Nicolas Robin, a
commodities fund manager at Threadneedle.
He said a bigger cut -- of 1 million bpd or more -- was an "outlier
scenario", but such a move would rapidly push prices above $85.
"A move higher would likely be accelerated by the lack of liquidity
owing to the U.S. (Thanksgiving) holiday next week," Robin added.
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Doug Hepworth of Gresham Investment Management said: "A surprise
significant cut, say of 2 million bpd, is needed to push prices back
up to $80. And that would have to be accompanied by some new-found
discipline in the non-Saudi members."
The market has been awash with conspiracy theories as to why Saudi
Arabia has not already intervened. New York Times columnist Thomas
Friedman hinted at "a global oil war under way pitting the United
States and Saudi Arabia on one side against Russia and Iran on the
other."
Tom Nelson, of Investec Global Energy Fund, said Saudi Arabia had
allowed the price to fall to incentivize the smaller OPEC producers,
which often rely on the biggest producer to intervene, to join
Riyadh in cutting output.
"They (the Saudis) want to cut but they don't want to cut alone,"
Nelson said, adding that a cut of between 1 million and 1.5 million
bpd should be sufficient to balance the market.
"The market really wants to see that OPEC is still functioning ...
if there is a small cut, with an accompanying statement of coherence
from OPEC that presents a united front, and talks about seeing
demand recovery, and some moderation of supply growth, then Brent
could move up to $80-$90."
(Additional reporting by Eric Onstad; Editing by Robin Pomeroy)
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