26 November 2014, Lagos – The Organisation of the Petroleum Exporting Countries (OPEC) is set to hold a very crucial meeting on Thursday to decide on new production cuts for member countries, as the cartel seeks to lift crude oil prices which have plunged by about one-third in value since June to about $80 a barrel.
If OPEC doesn’t curb production, the price of crude is likely to drop into the $60 per barrel range and possibly lower.
If OPEC agrees to a cut, crude could climb to $80 a barrel until production levels are confirmed early next year. The cartel would need to cut production by more than 1 million barrels a day to make any difference, analysts say.
The snag, though, is Saudi Arabia, the world’s largest oil producer, which has set its
sights on upsetting the US shale oil boom.
Analysts say the kingdom is content to see shale oil producers — and even some members of the cartel — suffer from low prices and will resist pressure to reduce output and shore up the cost of oil.
According to AFP, Saudi Oil Minister Ali al-Naimi was silent about his government’s intentions on Monday as he arrived in Vienna, Austria, ahead of the OPEC gathering.
“Is this the first time we have oversupply? he was quoted as saying by Dow Jones Newswires when questioned about current supply and demand.
However his Iraqi counterpart Abdel Mahdi arrived in Vienna pushing for action, deeming the steep price drop “not acceptable”.
Iraq’s sentiments will be re-echoed by Nigeria, Venezuela and Iran whose economies have taken a hit since oil started its downward spiral.
In contrast, Saudi Arabia is strong enough to withstand lower prices.
“Saudi Arabia wants to try and knock out shale oil competitors from the market,” said Saudi economist Abdulwahab Abu-Dahesh.
“They have the fiscal strength to remain steadfast for two to three years,” he told AFP.
Oil prices have collapsed to four-year lows on factors, including dampening demand in a sluggish world economy, a sharp rise in output from shale oil and other unconventional sources, and a strong dollar.
Although Saudi Arabia and its Gulf neighbours the United Arab Emirates and Kuwait could bear the burden of lower production, “I don’t think they will cut because they will lose their market share,” said Fahad Alturki, chief economist and head of research at Jadwa Investment in the Saudi capital.
Figures from the US Energy Information Administration (IEA) showed Saudi exports to the US dropped by almost 30 per cent from 1.25 million barrels per day in July to below 900,000 bpd in August, although it remains the second largest US supplier after Canada.
The kingdom then cut its prices for crude sold to the US market, sending global prices plummeting in early November by almost $2.
Analysts saw the Saudi move as an effort to hold onto North American market share against cheaper oil from US shale fields.
Saudi Arabia also raised prices for its oil sold to Asia and other areas but was apparently “concentrating more on defending its market share in the US,” Commerzbank analysts said.
The kingdom exports two-thirds of its crude to Asia but this year has seen its market share fall in China and India, said analysts from Platts, a global energy information provider.
OPEC pumped 30.6 million bpd last month, above its 30 million bpd target, according to the IEA, which advises member countries on energy policy.
Of that total, Saudi Arabia produced around 9.6 million bpd in October, according to data cited by OPEC.
Yet the kingdom may have to deal with pressure from Russia, the third largest producer after the US. The country’s most powerful oil official, Igor Sechin, was scheduled to arrive Vienna yesterday for talks with OPEC members.
Sechin, the head of state oil company Rosneft and a close ally of Russian President
Vladimir Putin, was expected to meet OPEC officials amid hints from Moscow that Russia could cut output or exports if the cartel does the same.
OPEC also has to contend with member countries facing stiff political and economic challenges at home, such as Nigeria, Venezuela and Iran, which may not readily oblige the cartel’s policy shifts if they hurt their economies.
As such, tomorrow’s meeting could signal not just the group’s oil strategies but the internal relationships and new direction of the group.
– This Day