OPEC's president, describing crude oil's plunge to $53 a barrel as „unacceptable,” urged members to comply with pledged production cuts.
„It's very difficult to have 100% compliance, but we need to make the cuts that we have agreed,” Mohamed al-Hamli, who is also the oil minister of the United Arab Emirates, said in a phone interview from Abu Dhabi. The Organization of Petroleum Exporting Countries, the producer of 40% of the world's oil, decided in the Q4 to cut output by 1.7 million barrels a day by February 1. Al-Hamli said consultations among ministers about falling prices are „ongoing” after OPEC only met two-thirds of the reduction it committed to last month. OPEC members are reining in supplies for the first time in almost three years after crude prices plunged 32% from a record of $78.40 a barrel on July 14 to $52.94 today. Crude oil on the New York Mercantile Exchange recovered after al-Hamli's comments, and was trading at $53.55 at 11.40 a.m. in London. Saudi Arabia, the largest Arab economy, suffered a recession and was unable to pay civil servants salaries in the late 1990s the last time the oil exporters group failed to stop prices from plunging. On that occasion crude fell to under $10 a barrel.
„OPEC probably will need to cut more,” said Jean-Bernard Guyon, director general of Global Gestion France in a phone interview from Paris today. „I would say another 500,000 barrel-a-day cut on top of the February cut, depending on the weather and the reaction in the market in February.” The weather in the US and Europe remains key, he said. Saudi Aramco, the world's largest state oil company, will make the biggest cut in exports to Asia in two years as OPEC producers implement cuts to stem a 12% slide in prices this year. Aramco informed South Korean refiners that supplies will be cut by between 11% and 14% in February, said refinery officials, who asked not to be identified because of confidentiality agreements with the company. Refiners in Japan will receive between 10% and 12% below contracted volumes, the officials said. Qatar's oil minister Abdullah bin Hamad al-Attiyah said the group was bringing forward February cuts to stem falling price in an interview on January 9. State-run Qatar Petroleum has already begun implementing its share of the group's reductions, he said.
Inventories of distillate fuel, a category that includes heating oil and diesel, surged 5.4 million barrels to 141 million in the week ended January 5, the biggest gain since January 2004, the Energy Department reported yesterday. Gasoline supplies rose 3.76 million barrels to 213.3 million. „We can't control the weather in the US,” al-Hamli said. „We need to see what impact the February cuts will have on the market.” He said the group has no plans at this moment to move forward its next quota setting meeting scheduled in March. Snow in New York City yesterday, the first this winter, was the latest since records began in 1869. Sharply falling prices could jeopardize plans by OPEC producers to boost production capacity and damage their economies, Ali Jarrah al-Sabah, Kuwait's oil minister said in a phone interview on January 9.
The ten members of the group that adhere to production quotas are investing an estimated $100 billion in projects to increase daily oil output capacity to help meet rising demand, according to OPEC's official Web site. „We don't want price volatility because we are investing billions of dollars to boost capacity,” al-Hamli said. The UAE's state-run Abu Dhabi National Oil Co. has already been instructed to reduce production, he said. Producers need higher prices to help pay for meeting total world energy demand through 2030, which has swollen by $3 trillion in a year because of higher industry costs, especially in oil and gas, according to the International Energy Agency's annual report. (Bloomberg)