Some Opec countries are calling for supply cuts after a drop in oil prices, but core Gulf members are betting winter demand will revive the market, suggesting the group is no closer to any collective steps.
Reuters/London/Dubai
Some Opec countries are calling for supply cuts after a drop in oil prices, but core Gulf members are betting winter demand will revive the market, suggesting the group is no closer to any collective steps.
The differing views within the 12-member Organisation of the Petroleum Exporting Countries (Opec) highlight a split between Saudi Arabia and its Gulf Arab allies and other members, such as Iran, who face greater budget pressures from sub-$100 oil.
“It is really bad that prices are falling, which is a result of increased US production, slower economic recovery of the EU and lower growth in China,” said a delegate from one of Opec’s African members.
“I think that the next Opec meeting will have to deal with the matter.”
Opec meets to set its oil output policy on November 27.
Oil has fallen from $115 in June to a 27-month low below $92 a barrel yesterday after Saudi Arabia cut its official crude selling prices, raising concern in the market that Opec’s top producer would not reduce its output.
A second source familiar with Opec policy said while the market was weak, with supply exceeding demand, it was too early for Opec to think of joint action to bolster prices.
“A collective Opec decision needs clear signals from each country, which is not there yet,” the source said.
So far, only Iran has called publicly for Opec to act to support prices. Opec’s Gulf Arab producers so far remain unworried, with Saudi Arabia’s oil minister appearing to downplay the price drop and delegates have stopped short of calling for action to bolster prices.
Opec’s output is climbing and in September hit 30.96mn barrels per day (bpd), its highest since November 2012, due to further recovery in Libya and higher output from the Gulf producers, according to a Reuters survey.
That is almost 1mn bpd more than Opec’s official production target of 30mn bpd and almost 2mn bpd more than Opec’s forecast of the average global demand for its crude in 2015.
Cutting output would be a challenge for Opec, analysts say. The group has not collectively lowered its supply since the 2008 financial crisis and lacks a system of individual output quotas to enforce any cutback agreement.
For US crude, some support was found from government data that showed an unexpected decrease in unemployment claims over the past week. Monthly employment data is due today which economists expect to show an increase in the size of the labour force.
But overall the sentiment remained bearish as supply from key producing regions including the US and Middle East remained strong while economic data from Europe and Asia hinted at weak demand.
Sharp cuts in Saudi Arabia’s oil sale price to Asian customers on Wednesday came as the clearest sign yet that the world’s largest exporter is trying to compete for crude market share and keep the market well supplied.
“This is a structural change in the oil market, with Saudi Arabia explicitly stating that they are willing to compete on price,” said Bjarne Schieldrop, chief commodities analyst at SEB in Oslo. “I think Brent will fall below $88 before we see the bottom of the market.”
Brent crude for November delivery fell $1.76 to $92.40 by 11:54 am (1554 GMT). It earlier hit $91.55, its lowest since June 2012.
US November crude lost 71 cents to reach $90.02 per barrel, after earlier sinking to $88.18, it lowest intraday level since April 2013.
Brent’s premium over US crude was at about $2.40 yesterday, its lowest since August 2013.
Oil declined alongside European stocks as the European Central Bank left interest rates unchanged yesterday, as expected.
ECB President Mario Draghi said that a planned bond purchase programme would last at least two years. US stocks also fell.
Some analysts said a cut in production from the Organization of the Petroleum Exporting Countries (Opec) at its meeting next month was the only move that could enable a price recovery.
With such steep losses in oil prices since June, others said that oil prices were likely to move higher.
“I don’t think we have much potential to keep going lower,” said Carl Larry, head of consultancy Oil Outlooks. “We are at the bottom of the range and there is a lot of room to go up.”
Oil production in Russia increased by almost 0.9% month-on-month in September to 10.61mn bpd, Energy Ministry data showed.
