OPEC to leave policy unchanged as oil prices slide
Saudi Arabia expressed satisfaction with recent steep falls in oil prices on Tuesday and appeared in no mood to change OPEC’s output policy at a meeting here as crude slipped to near 100 US dollars a barrel.
“We have worked very hard since June’s meeting to bring prices to where they are now. I think everything is in balance,” said Saudi Arabia’s Oil Minister Ali al-Nuaimi ahead of an OPEC policy meeting here later in the day.
The Saudi kingdom, the world’s biggest crude producer and de facto leader of the Organisation of Petroleum Exporting Countries, has come under fierce pressure from the United States and other allies over recent record prices.
The country agreed in May and June to pump an extra 500,000 barrels per day (bpd) to help bring down then runaway oil prices, which peaked above 147 US dollars in July but now threaten to dive into double digits again.
But some analysts believe OPEC members could opt for a “quiet” production cut as demand for oil falls, which would be achieved by reducing excess output above their official quota without formally announcing a policy switch.
“PFC Energy has learned that OPEC has in principle agreed to trim production from current levels above official output targets,” said the Washington-based consultancy, citing a cut of 500,000 barrels per day.
“The communique text will likely focus on the need to abide by agreed-upon production targets rather than on numerical targets for cuts,” it added.
At present, OPEC is believed to be producing about a million bpd more than its official ceiling of 29.67 million bpd, with Saudi Arabia accounting for most of the excess.
Iran has led calls for OPEC members to meet their quota targets, which would reduce oil on the market. Venezuela, Libya and Algeria have all raised worries about oversupplying the market as global economic growth weakens.
“We believe there is a level of overproduction of between one million and one million and a half (barrels per day),” said Venezuelan Energy Minister Rafael Ramirez as he arrived.
He said there was no need to change production, however.
The stakes for OPEC are entirely different from the last time the group met formally in March when prices had broken through 100 US dollars and were on a steep upwards trajectory.
This time, oil prices are on the way down approaching 100 US dollars — a level many members, above all the traditional price hawks of Iran and Venezuela, are keen to protect.
Furthermore, producers face an uncertain outlook for oil demand, with economic growth slowing and consumers across the world taking measures to reduce energy consumption as prices for heating and transport rise.
The dilemma for producers is how to find a balance between their desire for revenues and the danger that high prices could choke off economic growth.
Oil prices slumped close to 101 US dollars on Tuesday, their lowest level since the start of April, as the market awaited OPEC’s decision.
Brent North Sea crude for delivery in October dropped as low as 101.27 US dollars in London trading. It later stood at 102.26 US dollars, a loss of 1.18 US dollars from Monday’s close.
New York’s main contract, light sweet crude for October, shed 1.20 US dollars to 105.14 US dollars after briefly falling close to 104 US dollars.
With prices falling, this OPEC meeting has cast a spotlight on the minimum price that group members would like to see.
Iran and Venezuela have identified 100 US dollars as their floor, Ecuador has referred to 110-120 US dollars as “reasonable”, while analysts see Saudi Arabia and other Gulf states as being comfortable with a figure below 100 US dollars.
“The Saudi position was that prices were too high,” said Vera de Ladoucette, an analyst at the CERA energy consultancy.
“I believe that the ceiling for them isn’t 100 US dollars but rather 80. They are watching what is happening and prices have certainly fallen but they are still 12 percent higher than at the beginning of the year.”
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