OPEC set to maintain output policy as oil glut worsens

Despite oil prices plunging by more than 60 percent in 18 months, OPEC kingpin Saudi Arabia and the cartel’s other Gulf state members are defying calls to reduce output – in a year-long strategy of attempting to preserve market share and fend off competition from non-OPEC and world leading producers Russian Federation and the United States.

For Saudi Arabia, low oil prices and the prospects of big fiscal deficits have already prompted officials to float the idea of potentially unpopular reforms, including introducing a value added tax and cutting energy subsidies.

Russia, Mexico and other big producers outside OPEC have given no indication they would agree to any OPEC-led cuts in output.

“Saudi could end up with egg on its face if, as many industry analysts predict, they decide once again against slowing production, which could mean a further decrease in the price of oil per barrel”, Eberhart said.

OPEC’s policy is squeezing incomes for its members, whose combined annual revenue could fall to $550 billion from an average of more than $1 trillion in the past five years, the International Energy Agency said November 10. But conference president Emmanuel Ibe Kachikwu told reporters that there was agreement to maintain “current actual production”, which is well above the formal ceiling set at 30 million barrels a day.

LAUNCESTON, Australia China’s renewing of its oil purchase deals with Iran not only provides a boost to the Islamic Republic’s hopes of re-establishing itself in global markets, it also underscores why this week’s OPEC meeting is largely irrelevant.

Arriving for Friday’s meeting, Iranian oil minister Bijan Namdar Zanganeh said Iran is ready to discuss a ceiling for its production – but only after his country makes a “full return to the market”.

But prices would still be low, the document said, because the world has stored so much oil during this time of plentiful supplies. OPEC needs consensus among all its members before changing the group’s output target. “For instance, if Iran ups production, I would say they are entitled to”.

Iran agreed with its top two Chinese buyers, Sinopec Corp, Asia’s largest refiner, and Chinese state trader Zhuhai Zhenrong Corp, to sell about 505,000 barrels per day (bpd) in 2016, according to a Reuters report on December 3.

Cushioned by past profits on oil, the Saudis can hold out, even if production costs exceed sale revenues.

Bringing the ceiling in line with real production could help bridge the gap in views between OPEC and non-OPEC.

On markets Friday, US oil benchmark West Texas Intermediate (WTI) for delivery in January was up 37 cents at $41.45 a barrel. Global oil traders have said that unless OPEC reverses course, supplies will continue to overwhelm demand for months.

Oil prices rose in volatile trading Friday as traders positioned themselves ahead of the meeting.