Oil prices fall as Opec prepares to hold output levels

11:10 05 June in Latest News

Oil prices are on course for the biggest weekly loss in almost three months with all signals suggesting Opec will stick with its policy of keeping the taps open when the production cartel meets in Vienna later today.

Delegates from the 12-member group have shown few signs of wanting to tinker with the output target of 30m barrels a day, as they battle for market share and tackle a global supply glut.

Oil prices have rebounded since hitting a six-year low of $45 a barrel in January but have lost more than 6 per cent this week with international benchmark Brent trading below $62 on Friday morning.

Saudi Arabia, Opec’s largest producer, and its Gulf allies are convinced their policy of unconstrained oil output has helped boost demand, curbed production from high-cost operations such as US shale and deterred investment in big oil projects.

The Saudi Arabian oil minister, who pushed through the strategy at November’s landmark meeting, was in a bullish mood on Friday morning before the meeting.

He said he had no concerns about rising oil output, even if sanctions on Iran’s energy industry are lifted.

“Production is a sovereign right. They are free to do as they want,” Ali al-Naimi told reporters at an open session for the press before the meeting.

“You probably see a lot of risks in life. I don’t.”

The group may discuss raising its official production target by 1m barrels to 31m barrels a day at the meeting to bring it more in line with the cartel’s actual output, though most observers expect a simple rollover of the group’s existing policy.

“The market is in a transition phase, it is not stable,” the United Arab Emirates oil minister Suhail Mohamed Al Mazrouei said. “We are optimistic about what happened in the first quarter in terms of [the price] correction.”

Opec’s decision in November to abandon its traditional role of bolstering prices through production cuts and instead defend market share upended the oil market and altered the energy landscape.

Budgets of exporter countries have taken a hit while $100bn of spending on new global oil projects has been put on hold or cut by the world’s largest energy groups.

Crude oil fell from $115 a barrel last June to $45 in January after Saudi Arabia strong-armed fellow Opec members into adopting the new strategy.

With Brent, the international oil marker, holding above $60 a barrel since April, there is little appetite among Opec’s members to make big changes, even as the US shale industry has been more resilient than many people had expected.

Break-even costs for shale oil and gas production are down by almost one-third since the crude price crash, according to industry executives.

On Friday, Brent was trading at $61.80 a barrel, down 6 per cent over the week. West Texas Intermediate, the US oil benchmark, was at $57.50 a barrel.

Oil ministers from Iraq, Venezuela and Angola said a price of $75 to $80 a barrel could be a fair level for oil.

Iraq’s Abd Al Mahdi said it would be “equitable”. He said he was “optimistic” about the group’s strategy on Friday morning.

While delegates acknowledged the fiscal strain a lower price range could exert on the budgets of their countries, many reluctantly admitted they would stick with the policy of not cutting output.

But they will have to hope demand continues to improve to absorb supply from Iran if a deal over its nuclear programme is finalised later this month, which may end western sanctions on its oil exports.

Iran’s crude output has fallen to about 2.8m barrels a day, from 3.6m b/d in 2011 before sanctions were stepped up. Exports from the Opec producer stand at about 1.1m b/d, half their pre-sanctions level.

“We don’t need any decision from Opec side about returning to market, it is our right,” Iran’s oil minister Bijan Zanganeh told reporters on Friday morning.

“The issue is to achieve traditional market share of Iran in the oil market.”

(Source: Financial Times)