OPEC’s Solution To Oil Glut: More Oil!
OPEC members failed to agree on an oil production ceiling on Friday at a meeting that ended in acrimony, after Iran said it would not consider any production curbs until it restores output scaled back for years under Western sanctions.
The Organization of the Petroleum Exporting Countries on Friday elected to maintain current oil production levels despite apparent disagreement among members about the strategy.
Benchmark Brent oil futures – which are near a six-year low – lost almost $2 on the news, falling 1.5 percent to trade slightly above $43 a barrel by 1455 GMT.
Saudi Arabia has been under pressure from OPEC’s poorer members to cut output to bolster prices, which have dropped from over $100 a barrel since June 2014.
However, wealthier producers argue that cutting production at this time would result in further loss of market shares in North America, where demand for OPEC oil has been sharply reduced.
Nigerian Minister of State for Petroleum Resources Emmanuel Ibe Kachikwu said Saudi Arabia didn’t propose a cut at the meeting on Thursday.
Ultimately, OPEC leader Saudi Arabia decided not to answer desperate pleas from less affluent members like Nigeria and Venezuela to cut production. “That’s the argument that has carried the day in Opec, and the heavy pressure on non-Opec producers, especially United States shale, is going to be kept up”.
In examining the current status of the oil market, the Conference respected the input and ideas of all Member Countries to find ways and means to deal with the challenges they are facing in the global oil market today.
“Prices have gone down too much”, said Vice Prime Minister Abdourhman Ataher Al-Ahirish of strife-torn Libya, where GDP is expected to shrink more than 6 percent this year.
The 30 million-barrel figure wasn’t mentioned in OPEC’s news release after the meeting, an unusual omission.
According to the OPEC’s monthly oil market report in November, the total output level stood 31.4mbpd in October.
“OPEC is likely to stay on course on December 4”, said Gary Ross, chairman of NY based consultancy Pira Energy.
”We have said on more than one occasion, we are willing to cooperate with anyone who can balance the market”, said Saudi Arabian oil minister Ali al-Naimi.
Marathon Oil Corp, Hess Corp and Occidental Petroleum Corp each fell more than 2 percent. In the last few weeks, investors have run up big bearish bets, or short positions, betting on a fall in the price of crude oil, which could be rapidly unwound if OPEC were to give any signal that it might adjust its stance on supply. “Oil is already there, and the market is oversupplied right now”, he added.
Failure to reduce the global oversupply could push oil prices $20 lower next year, Venezuelan Oil Minister Eulogio Del Pino warned before the OPEC meeting. The glut – combined with the slowdown in many emerging markets and China in particular – has kept oil below $50 a barrel for much of this year.