Opec set to back production cut By Carola Hoyos in London
Published: October 4 2006 22:04 | Last updated: October 4 2006 22:04
Opec has agreed informally that it needs to cut production by at least 1m barrels a day – at least 4 per cent – in order to boost the falling price of oil.
The majority of the cartel’s members back a voluntary reduction over the coming weeks and the deal could be ratified as early as the group’s mid-December meeting in the Nigerian capital of Abuja.
“Opec is going to defend a price floor for its oil of $50-$55 a barrel,” said one Opec official. The price of Opec’s crude oil on Wednesday fell to $55.27 while Brent oil futures traded in London slipped 33 cents to $58 a barrel, 26 per cent below their July peak.
Prices have fallen as demand in the US has waned and the likelihood of a supply shortage caused by Iran’s stand-off with the west has diminished.
Saudi Arabia, Opec’s most important member, is unhappy with the move towards voluntary cuts, but at the same time the kingdom has already quietly cut its production by 200,000 barrels a day over the past two months. It would rather reach a clear public position at the cartel’s meeting in Abuja.
However, on Wednesday the kingdom sharply increased the price it charges European refineries for its oil, making it likely that there will be a further drop in volumes in November.
Kuwait on Wednesday became the first Persian Gulf state to herald production cuts after Nigeria and Venezuela announced on Friday that they would reduce output by a total of 170,000 b/d.
Sheikh Ali al Jarrah al Sabah, Kuwait’s energy minister, publicly confirmed only that Kuwait might cut production, saying: “We are currently in negotiations with fellow Opec members. Matters have been left that these voluntary reductions undertaken by some Opec countries will calm the markets, at least for the current period.”
But Opec insiders said on Wednesday that Kuwait, Iran, Venezuela, Nigeria and Libya had informally agreed to voluntary cuts and the UAE had said it was likely to join in.
The discussions are still fluid, but the voluntary reductions are most likely to be formalised at the cartel’s Abuja meeting, the insiders said. Opec members worry most about next year’s second quarter when they foresee a sizeable glut unless production is reduced well in advance.
The cartel is expecting new oil production from other parts of the world to hit prices and displace demand for its own oil.
The cartel’s Vienna-based secretariat forecasts the need for Opec oil in the second quarter of 2007 to fall to 26.97m b/d, 2m b/d, 10 per cent less than the average demand for Opec oil in 2006.
Adding to Opec’s concerns yesterday was news from the US energy department that US oil inventories rose by 3.3m barrels last week, indicating that supply far outweighed immediate need for oil.
“There is an abundance of production and countries have better managed to collect more oil for their inventories,” Prince Turki Al-Faisal, Saudi Arabia’s ambassador to the US, said.
