Global Oil Consumption Competes with Record Production Levels

Iran on Thursday said it would move forward with plans to boost its oil output, rejecting the Saudi call to join an OPEC production cut.

The increase is expected to add to the ongoing oversupply in oil that is prevalent in markets worldwide.

“Saudi Arabia seems content to wait for lower non-OPEC supply and stronger demand to lift prices next year”, said Julian Jessop, analyst at Capital Economics research group.

Light sweet crude oil (WTI) futures jumped 1.14 dollar or 2.85 percent to close at USD 41.08 a barrel at the New York-based commodity exchange NYMEX. “This is a war over market share and they’re not going to blink first”.

“I’m inclined to doubt that OPEC will have much influence on oil prices at this stage”, said Ric Spooner, chief market analyst at Sydney’s CMC Markets. It comes after Russian Federation has been working its way into Saudi Arabia’s once undisputed market in Asia for the past decade.

Within Opec, the Saudis would want Iraq to freeze production levels at current volumes of about 4 million bpd, while Iran, which expects western export sanctions to be lifted early next year, would also need to participate in the effort. So, the prospect of no cuts and even more oil from Iran coming to the market has made the possibility of a growing glut even worse. That strategy clearly hasn’t worked, with benchmark USA crude’s value falling by more than 40 percent over the past year and now hovering around the $40 mark per barrel.

Besides the OPEC meeting, oil traders are focusing on Friday’s nonfarm payrolls report for November, the last jobs report before the Fed decides on interest rates at its December 15-16 meeting. That’s why output is down only 500,000 barrels a day from the April peak, averaging 9.1m daily in October, said the Energy Information Agency, part of the US Energy Department.

Previous production increases in the U.S. and OPEC’s refusal to curb its own output have contributed to this trend, causing budgetary troubles in OPEC countries that are dependent on oil revenues.

You couldn’t blame anyone for having doubts over whether Saudi Arabia is really ready to support oil prices that have fallen from a peak of $114 a barrel last June, to around $40 a barrel now.

Iran, which has 60 billion barrels of proven oil in its southwest region alone, has been gearing up for this moment by having engineers work around the clock to prepare the country’s aging oil infrastructure.

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