Oil drops after Opec sticks to current production rates

Qatar’s HE the Minister of Energy and Industry Dr Mohammed bin Saleh al-Sada talks to journalists during a meeting of Opec oil ministers in Vienna yesterday. The Opec is committed to production of about 31.5mn barrels a day, Nigeria’s Minister of State for Petroleum Resources and Opec president Emmanuel Ibe Kachikwu said after the meeting.Bloomberg, ReutersNew York/ViennaOil dropped after Opec’s president said the group will continue producing at levels that exceed its own target.The Organisation of Petroleum Exporting Countries is committed to production of about 31.5mn barrels a day, Nigeria’s Minister of State for Petroleum Resources and Opec President Emmanuel Ibe Kachikwu said in Vienna after the group’s meeting.Ministers may gather again before June if prices keep falling, he said. The group pumped about 31.4mn in October, according to estimates in its monthly market report.Oil has slumped since Saudi Arabia led Opec’s decision last year to maintain production and defend market share against higher-cost rivals. The kingdom, the group’s biggest producer and architect of the current policy, has steadfastly opposed a cut in output unless countries outside the group cooperate. Opec has pumped more than its collective target of 30mn barrels a day for the past 18 months, data compiled by Bloomberg show.“The Saudis are sticking to their policy,” Mike Wittner, head of oil-market research in New York at Societe Generale, said by phone. “The Saudis aren’t going to make any cuts unless they get cooperation both within and outside of Opec. They want to see their major competitors, Russia and Iraq, shut in production.”Falling crude prices helped spur a rout in oil-industry stocks, which were the worst performers on the Standard & Poor’s 500 Index this year. Its Energy Sector Index has fallen 21% in 2015, while the S&P 500 is up 0.7% as of Friday.West Texas Intermediate crude for January delivery dropped 91¢, or 2.2%, to $40.17 a barrel at 11:56am on the New York Mercantile Exchange. Futures touched $39.60, the lowest since November 20. The volume of all futures traded was 40% above the 100-day average.Brent for January settlement slipped 47¢, or 1.1%, to $43.37 a barrel on the London-based ICE Futures Europe exchange. It’s down 3.3% this week. The European benchmark crude traded at a $3.20 premium to WTI.“We’re in for another leg down,” Bill O’Grady, chief market strategist at Confluence Investment Management in St Louis, which oversees $3.4bn, said by phone. “The Saudis didn’t blink. They want to see non-Opec countries cut supply before they take action.”Global oil stockpiles have risen to record levels as Saudi Arabia, Russia and Iraq boosted supply, the International Energy Agency said on November 13. There is global oversupply of 1.5mn to 2mn barrels a day, Iran’s Oil Minister Bijan Namdar Zanganeh said yesterday, before the ministers met.Iran, which pumped 2.8mn barrels a day last month, according to a Bloomberg Survey, plans to boost supply by 500,000 barrels a day within weeks of sanctions being lifted and by 1mn barrels months later.“This decision reflects the consensus going into the meeting of Opec’s policy for prices needing to find a floor to deter new non-Opec supply projects,” Gareth Lewis-Davies, London-based energy strategist at BNP Paribas, said by phone. “The higher quota reflects the realpolitik of accommodating Iran.”Adding to the glut is Russia pumping at near record levels and increasing North Sea shipments, while crude stockpiles in the US, the world’s largest consumer, have expanded to more than 120mn barrels above the five-year seasonal average. Russia, Mexico and other big producers outside of the group have given no indication they would agree to any Opec-led supply cuts.Opec’s secretary-general Abdullah al-Badri said Opec could not agree on any figures because it could not predict how much oil Iran would add to the market next year, as sanctions are withdrawn under a deal reached six months ago with world powers over its nuclear programme. Most ministers left the meeting without making comments. Badri tried to lessen the embarrassment by saying Opec was as strong as ever, only to hear an outburst of laughter from reporters and analysts in the conference room. A year ago, Saudi Arabia pushed though an Opec decision to defend market share instead of cutting output, ultimately hoping to drive high-cost producers such as US shale firms out of the market. Many poorer Opec members have said the group’s largest producer was effectively twisting their arms, prompting the Saudi oil minister, Ali al-Naimi, to say he would listen to everyone this time. Iran has made its position clear ahead of the meeting with Zangeneh saying Tehran would raise supply by at least 1mn barrels per day — or 1% of global supply — after sanctions are lifted. The world is already producing up to 2mn bpd more than it consumes. Naimi earlier had said he hoped growing global demand could absorb an expected jump in Iranian production next year: “Everyone is welcome to go into the market”. He made no comment after the meeting. At the meeting, Opec welcomed back returning member Indonesia, its 13th member. The group accounts for about a third of world oil output and does not include Russia or the US, which rival Saudi Arabia as the world’s biggest producers. “The pressure will build on Opec and oil prices. At this rate of overproduction we will run out of onshore storage in the first quarter,” said Gary Ross, a veteran Opec watcher and the founder of PIRA think-tank. Opec sources told Reuters the ministers had agreed to roll over existing policies during the first couple of hours of deliberations. That involved raising the collective ceiling, excluding new member Indonesia, to 31.5mn bpd from the previous 30mn — effectively bringing it in line with real production numbers. But later, all decisions appeared to have been overturned, leaving the group with no official policy. It was not immediately clear what happened behind closed doors.