A man walks past the Opec building in Vienna, Austria (file). Oil markets are brimming with new barrels coming out of US shale reservoirs, and separate forecasts from Opec and the International Energy Agency last week showed demand for Opec oil next year will fall well below its current production of around 30mn bpd.
Dow Jones/Dubai
Opec could be forced to reduce its oil production by half a million barrels a day when it meets in December, the first cut in five years, as the latest forecasts show the US shale boom will dent demand for its crude next year, Gulf delegates within the group said.
Oil markets are brimming with new barrels coming out of US shale reservoirs, and separate forecasts from the Organisation of the Petroleum Exporting Countries and the International Energy Agency last week showed demand for Opec oil next year will fall well below its current production of around 30mn bpd.
“Based on what the forecast says, we would have to cut,” said one delegate from a Gulf country that has tended to oppose production cuts in the recent past.
A cut of about 500,000 bpd was likely to be debated at the December meeting, said another Opec delegate from the Gulf region.
In recent meetings, Gulf countries, including Saudi Arabia, have supported maintaining Opec’s collective 30mn bpd production ceiling. They have opposed production cuts because they fear the resulting higher prices could hurt the oil demand of their Western customers, whose economies are still recovering from the 2008 economic crisis.
Opec hasn’t made a formal production cut since slashing 4.2mn bpd from its quotas when oil demand slumped and prices crashed during the financial crisis in late 2008.
The views of Opec’s Gulf members have shifted after the first detailed oil market forecasts for the year ahead showed demand for its crude falling substantially below current production.
Last Wednesday, Opec forecast that demand for its crude in 2014 will be below its current 30mn bpd ceiling-by about 800,000 bpd for the first half of the year-and about 400,000 bpd lower across the whole year.
On Thursday, the IEA estimated the need for Opec crude would be just 28.85mn bpd in the first half of 2014, and about 29.4mn bpd for the whole year. Some of this demand could also be satisfied by drawing oil out of inventories, the IEA said.
The drop in demand for Opec crude will come as oil supply from countries outside the group, estimated to grow by between 1.1mn bpd and 1.3mn bpd in 2014, rises faster than global demand.
In a note on Monday, London-based oil broker PVM Oil Associates Ltd said recent forecasts clearly show the market is over supplied.
Another non-Gulf Opec delegate said any decision to reduce the group’s ceiling would depend on where global oil inventories stand in December. Supply disruption risks-such as the political crisis in Egypt or recent Canadian floods-may also deter Opec from cutting its ceiling, the delegate said.
In its report last week, the IEA warned that an expected increase of US output next year of about 500,000 bpd could be offset by disruptions caused by Middle-Eastern political unrest or unplanned outages in the North Sea.
Opec could also rule against a reduction if prices remained above $100 a barrel, said the first Gulf delegate.
