The Organisation of the Petroleum Exporting Countries, the cartel that controls 40% of the world’s supply, is expected on Thursday to agree to cut production by about 1 million barrels a day.
Delegates and ministers hinted that they might also signal their willingness to deepen the cuts in the next three months if supply continues to outpace demand and prices do not recover to more than $60 a barrel. Oil prices edged up on Thursday morning. US light crude for November was up 29 cents at $57.91, close to its 2006 low, while London Brent crude was up 29 cents at $59.73. Analysts believe Saudi Arabia, UAE and Kuwait are the Opec members most likely to adhere to the group’s decision and will shoulder the brunt of the cuts. This will give them a strong position as Opec gathers to negotiate how to implement the measure. The cartel has been surprised at the speed of the recent fall in oil prices, which have dropped 25% since reaching a high of $78.40 a barrel. Producers have watched with concern as crude oil inventories in consuming countries have grown, indicating that that the market was oversupplied.
US inventories of crude oil in the past week rose by 5.1 million barrels a day to 8% above year-ago levels, according to data published on Wednesday by the Energy Information Administration, the statistical arm of the US Department of Energy. Despite its concerns over prices, Saudi Arabia does not want to return to being the world’s sole swing producer, a role it played from 1980-1986, cutting supply as oil prices fell. Opec will therefore need to share the cuts and the subsequent reduction in revenue. Exactly how the 11-member group will do this has been a point of contention for the past two weeks and is likely to become clear only after sunset in Doha, when ministers break their Ramadan fast and meet to discuss the details of their plan. A major sticking point has been deciding which baseline to use: quota level, current production, or average production over the past three, six or 12 months. Abdullah bin Hamad Al Attiyah, Qatar’s energy minister, said on Thursday that he proposed Opec should cut 1 million barrels a day from a baseline of each country’s average output over the past three months. But other delegates and ministers said nothing had yet been decided. (FT.com)