Oran, Algeria: The Organization of the Petroleum Exporting Countries (Opec) has signalled its readiness to remove up to two million barrels per day, or bpd, of supply when it meets on Wednesday, hoping that will be enough to fight the biggest fuel demand slump in a generation and rescue prices.
Oil edged up to around $45 (Rs2,151) a barrel on Tuesday on the prospect of Opec making its third production cut this year.
Opec restraints of two million bpd already in place have failed to counteract a recession that has battered global demand and lopped more than $100 off prices since July.
“We want a very, very strong decision,” Venezuelan oil minister Rafael Ramirez said.
When asked what scale of cut he would support, Ramirez replied: “Between one and two million.”
Venezuela and Iran are dependent on higher prices to fund ambitious domestic programmes and even Gulf producers need a price of around $50.
Iran also wants a substantial cut.
“Our recent reduction was not enough to change the market’s direction so we need a bigger cut,” an Iranian Opec delegate said.
“Consumers are worried too because this trend will damage investment in biofuels, biodiesel, ethanol and high cost oil-producing areas. This will cause problems for future supply.”
Two million bpd would be the biggest volume ever cut by the group that pumps at least one-third of the world’s oil.
Opec’s Gulf producers also stood ready to lower supplies to prevent a massive build up of fuel stocks.
They want to push oil back towards $75 a barrel—the “fair” price identified by top exporter Saudi Arabia last month.
Riyadh had yet to make public comment on its position, but Opec president Chakib Khelil said on Monday the group’s most influential member had already throttled back in anticipation of further supply curbs.
Reuters had reported last week that Saudi Arabia’s biggest customers would receive less oil in January—implying the kingdom had already factored in another Opec reduction.
Sticking to cuts
“Everybody is suffering. That is why we want two million,” said an Opec delegate. “But we’re worried about compliance.”
Deep cuts are more difficult to enforce as they require discipline from all Opec members and lead to accusations behind closed doors of cheating on quotas.
According to independent observers cited in Opec’s monthly report on Tuesday, the group’s compliance in November to existing cuts was only just over 50%.
The economists at Opec’s Vienna secretariat also echoed the view of the US government: the world’s thirst for fuel is expected to shrink this year and next, the first time since the 1980s demand will contract for two years running. A slump in consumption has lifted oil inventories in Oecd industrialized nations to the equivalent of nearly 57 days of forward demand, a measure Opec closely monitors. The industry norm for this time of year is about 52.
Opec was also hoping for support from exporters outside the group but in the past, any collaboration has been unconvincing. Non-Opec output is in any case stagnating because of ageing fields and under-investment.
Russia, the biggest non-Opec exporter, was sending its energy minister and its deputy prime minister to the Oran meeting.
Leading banks have predicted oil could sink to $30 or below early next year, and some in Opec concede Riyadh’s “fair” $75 may be out of reach at least until the end of next year.
Opec members outside the Gulf agree with the Saudi view on price, which analysts said was broadly in line with the cost of marginal production in new, higher cost frontiers such as Canada’s oil sands.
“In terms of producers, we could talk of a price of $70-75 per barrel of oil. That is the balance we are aiming for,” said Angola’s oil minister Botelho de Vasconcelos.
Opec’s biggest cut by volume so far was in April 1999, when it reduced production by 1.716 million bpd, according to Reuters data. Reuters
William Maclean and Barbara Lewis in Oran, Henrique Almeida in Luanda and Hashem Kalantari in Tehran also contributed to this story.