OPEC fails to agree production ceiling

A report in newsletter Energy Intelligence suggested this week Saudi Arabia might be ready to fine-tune policies and could start pushing for a global deal to curb supply in order to avoid oil prices remaining low for longer.

According to him, as far as supply was concerned, non-OPEC countries would continue to see significant reduced production growth as compared to past years, predicting a contraction in non-OPEC oil supply in 2016.

Crude slumped about 38 percent in the last year, with global benchmark Brent crude headed for its lowest annual average in a decade after reaching a six-year low of $42.23 on August 24.

Near-record volumes have sent oil prices tumbling and OPEC seems to have done nothing to tackle overproduction.

Iraq’s Oil Minister Adil Abd Al-Mahdi told reporters in Vienna that nothing had been decided yet during the informal gathering ahead of Friday’s meeting in Vienna. “Nothing has been curtailed”. On June 30, 2014, the price was US$105.37 a barrel. And if a Saudi-led production cut occurred without non-OPEC- member countries reducing their production, even many OPEC countries believe it might not give prices a lasting lift, meaning Saudi would gain nothing even while creating an opening for Iran to boost sales.

“This is just an effort on OPEC’s part to see if they can outlast shale oil exploration and production in the United States”, said Ron Ness, president of the North Dakota Petroleum Council, an industry trade group. Right now, there are 2 million spare barrels of oil on the market every day.

The Organization of Petroleum Exporting Countries also approved Indonesia’s resumption of full membership in the organization, following a request in September 2015 by the country. The Saudis want to prevent Iran, their longtime enemy, from gaining market share or the profits that higher oil prices would deliver. “In view of the aforementioned, and emphasizing its commitment to ensuring a long-term stable and balanced oil market for both producers and consumers, the Conference agreed that Member Countries should continue to closely monitor developments in the coming months”. Around the same time they made a decision to purposefully crash the price of oil.

The divisions are a sign of how a year of low prices – and the prospect of more months of cheap oil – are hurting OPEC nations. OPEC pumps four-in-10 barrels worldwide. “Americans don’t have any ceiling, Russians don’t have any ceiling, why should OPEC have a ceiling?” OPEC needs consensus among all its members before changing the group’s output target. The world’s fastest-growing source of crude this year, it was pumping more than four million barrels a day last month and was responsible for last month’s biggest monthly rise in output among all OPEC countries. The overproduction is likely to worsen next year as Iran plans to pump an additional 500,000 barrels a day within weeks of global sanctions being lifted.