Low expectations for oil output cut as Opec meets

Gulf oil producers led by Saudi Arabia are expected to press the case ofor not yet cutting Opec output, despite calls from several members of the group to bolster sagging prices by removing surplus crude from the market.

Saudi oil minister Ali al-Naimi and his United Arab Emirates counterpart, Suhail bin Mohammed al-Mazroui, said they expected the oil market to stabilise itself.

A Gulf Opec delegate told Reuters the Gulf producers had reached a consensus not to cut output.

Another delegate agreed and a third delegate said the outcome was too difficult to predict. Brent oil prices fell $2 to a fresh four-year low under $76 a barrel as the likelihood of a joint cut by the 12-member Opec waned.

The meeting of the Organization of the Petroleum Exporting Countries is one of the most closely watched in years, with oil prices having sunk 30 per cent since June due to the US shale boom and slower economic growth in China and Europe. Cutting output unilaterally would effectively mean for

Opec, which accounts for a third of global oil output, a further loss of market share to North American shale oil producers. If the organisation decides against cutting and rolls over existing output levels, that will effectively mean the start of a battle for market share, Iranian oil minister Bijan Zangeneh said.

Saudis and other Gulf producers could withstand such a battle and a period of lower oil prices due to their large foreign-exchange reserves. Other members, such as Venezuela or Iran, would find it much more difficult.

Kuwaiti oil minister Ali Saleh al-Omair said Opec would have to accept any market price of oil, whether it were $60, $80 or $100 a barrel. Iraq’s oil minister, Adel Abdel Mehdi, said he saw a floor for oil prices at $65-70 per barrel.

Shale disaster

The North American shale boom has taken many at Opec by surprise, undermining the group’s grip on the oil market and reducing its market share.

“The US is producing in a very, very bad manner. Shale oil, I mean it is a disaster from the point of view of climate change and the environment,” Venezuelan foreign minister Rafael Ramirez, who represents the country at Opec said. While several Gulf members said they sensed a degree of consensus and unity among Opec, Mr Ramirez and Algerian oil minister Youcef Yousfi said they would support an output cut. Mr Ramirez said he would support a reduction of as much as 5 per cent across the board.

Such a cut would reduce Opec’s output ceiling from 30 million barrels per day (bpd) to 28.5 million bpd - close to the group’s expectations for demand for its oil next year.

Opec usually needs to agree decisions unanimously and the difference in views is likely to guarantee a prolonged debate. A Gulf Opec delegate and several watchers have said they expect the group to roll over existing output levels and stress the importance of better compliance with the current ceiling.

Opec could also schedule an extraordinary meeting if oil prices keep falling.

Reuters