Oil Bear Market Tests OPEC Unity
Oil ministers from Kuwait and Algeria dismissed possible production cuts as crude’s slump to a four-year low prompted Venezuela to call for an emergency meeting of the Organization of Petroleum Exporting Countries.
Kuwait hasn’t received an invitation for any urgent OPEC meeting to discuss a reduction in output, Oil Minister Ali Al-Omair said in comments reported by the official Kuwait News Agency. His Algerian counterpart Youcef Yousfi said yesterday he knew of no plans for any emergency session and was unconcerned by current price levels.
Bear markets for Brent and U.S. crude are putting pressure on OPEC’s consensus on output ahead of the group’s scheduled Nov. 27 meeting in Vienna, according to Olivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland. OPEC supplies 40 percent of the world’s oil, and its largest Persian Gulf producers, including Saudi Arabia, Iraq and Iran, are offering deeper discounts to buyers in Asia to maintain market share amid a global glut.
“If we had a way to preserve the stability of prices or something that would bring it back to previous levels, we would not hesitate in that,” Kuwait’sAl-Omair said in remarks reported by KUNA yesterday. “There is no room for countries to reduce their production,” he said, without giving details.
Ample supply, helped by surging U.S. and Russian output, pushed Brent crude into a bear market last week. The European benchmark slumped more than 20 percent from its peak for the year on June 19, meeting a common definition of a bear market. Brent fell on Oct. 10 to its lowest since December 2010. It declined as much as 2.7 percent today and was at $88.41 a barrel at 3:20 p.m. in London.
“This is going to increase pressure for Saudi Arabia to cut output to raise prices,” Jakob of Petromatrix said by telephone today. The kingdom holds most of OPEC’s unused production capacity and can influence global prices by adjusting the amount of crude it pumps. “They are increasingly giving signs they won’t do it on their own. Saudi Arabia doesn’t want to lose market share in Asia,” he said.
OPEC is boosting production as its members fight for market share and seek to meet rising domestic demand. The group pumped 30.47 million barrels a day in September, the most since August 2013, it said Oct. 10 in its latest monthly Oil Market Report.
Saudi Arabia, Iran and most recently Iraq all widened the discounts they’ll offer on their main grades sold to Asia next month to the most since at least 2009.
Venezuelan President Nicolas Maduro gave instructions to ask for an extraordinary OPEC meeting, the country’s foreign ministry said in a post on its Twitter account on Oct. 10.
“The price of oil is important for our country, and we’ll start actions to stop its fall,” the ministry cited former oil minister Rafael Ramirez as saying.
The slump in prices may by coming to an end as the global economy is unlikely to deteriorate further, according to Bank of America Corp. The discount on front-month Brent futures, also known as its time-spread, has diminished, signaling that the glut weighing on short-term prices is dissipating, head of commodities research Francisco Blanch said on Oct. 7.
“The fact that time-spreads are starting to narrow is an indicator that the supply overhang is starting to clear,” Blanch said by phone from New York. “The downside is going to be somewhat limited, unless the macro turns a lot worse, and there aren’t a lot of reasons to believe the macro is going to turn a lot worse.”
Crude prices have fallen because of several factors, including U.S. shale production, geopolitics and speculation, Algeria’s Yousfi said yesterday at a news conference in the city of Oran. “We follow with great attention the level of oil prices, but we are very tranquil,” he said.
Crude probably won’t fall below $76 to $77 a barrel because that price level represents the highest cost of production in the U.S. and Russia, Al-Omair of Kuwait said. Both countries have abundant supply and are outside the group.
Russia is concerned about volatility in oil prices and will continue regular consultations with OPEC on ways to steady markets, Deputy Energy Minister Yury Sentyurin told reporters in Abu Dhabi yesterday.
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