OPEC set to maintain output levels as oil glut worsens
By Rania El Gamal, Alex Lawler and Reem Shamseddine
VIENNA (Reuters) – OPEC looked unlikely to take steps to cut oil production to lift languishing prices at a meeting on Friday, potentially worsening one of the worst crude gluts in history.
Benchmark Brent oil futures <LCOc1> are below $45 per barrel, just a few dollars off their 6-year lows. The Organization of the Petroleum Exporting Countries’ (OPEC) own basket of crude grades is below $38 per barrel – a fraction of what most members need to balance their budgets.
OPEC’s poorer members have been piling pressure on its wealthier members, led by Saudi Arabia, to curb supply.
But Riyadh and its Gulf allies appeared on Friday to be ready to stick to their strategy of defending market share, hoping that lower prices would ultimately drive higher cost producers, such as U.S. shale oil firms, out of the market.
The Saudis have previously said they would be prepared to consider a cut only if OPEC members Iraq and Iran agreed to cooperate and non-OPEC members such as Russia joined in.
”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.
But Moscow repeated this week it saw no chance of joint actions, and Iran and Iraq on Friday showed no willingness to curb supply either.
Iranian oil minister Bijan Zangeneh said Tehran would be prepared to discuss OPEC quotas or other action only when his country reached full output levels, when and if Western sanctions on the country are lifted next year. He said he expected OPEC to maintain production policies on Friday.
Naimi said he hoped growing global demand could absorb an expected jump in Iranian production next year.
“Everyone is welcome to go into the market,” Naimi said of Iran. “(There are) absolutely no disagreements anywhere.”
Iran has repeatedly said it would boost production by at least 1 million barrels per day (bpd) when sanctions are lifted. This would add to the global glut as the world is currently already consuming up to 2 million bpd less than it is producing.
Iraqi oil minister Adel Abdel Mahdi said his country would further raise output next year after having steeply increased production in 2015.
While the Saudis can claim a partial victory over the U.S. shale oil boom, production from top non-OPEC rival Russia continues to surprise on the upside and world oil stockpiles are at record levels.
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.
Reduced oil revenue is also causing some of the influential business class to push Riyadh to quickly seek an end to its expensive war in Yemen, the kingdom’s biggest strategic gambit in decades, and one that defines King Salman’s foreign policy.
However, while it has made steps to cut excess expenditure, the government has indicated it will use its vast foreign reserves and low debt levels to keep capital spending high in coming budgets to maintain private-sector growth.
A report in newsletter Energy Intelligence suggested this week the Saudis 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.
But Naimi said on Friday the report was “baseless”.
While the outcome of the Friday meeting seems clear, surprises are always possible.
One possible scenario is for OPEC to recognise the fact that members are pumping well in excess of the formal ceiling, and raise the group’s collective quota from 30 million bpd to 31.5 million bpd, in line with the current volumes, one source said.
OPEC abandoned production quotas for individual members several years ago and most members have been producing as much as they want.
Russian energy minister Alexander Novak said on Thursday OPEC should bring its production levels close to reality.
Bringing the ceiling in line with real production could help bridge the gap in views between OPEC and non-OPEC. The two had last cooperated almost 15 years ago to cut output and prop up the prices following the 1998 financial crisis.
(Additional reporting by Vladimir Soldatkin in Vienna, Shadia Nusralla and Marianna Parraga in Houston; Writing by Dmitry Zhdannikov; Editing by Michael Urquhart and Pravin Char)