Abu Dhabi National Oil Company (Adnoc) today told customers it will cut crude oil deliveries from several major oilfields as the UAE moved to comply with a reduced Opec oil-production ceiling. On Friday, the group of oil exporting nations agreed at an emergency meeting in Vienna to cut its members' production quotas by 1.5 million barrels per day (bpd) - about five per cent - in a move to stabilise oil markets. Under the agreement, which takes effect from Saturday, the UAE would cut its crude output by 134,000 bpd.
Providing the first evidence of member compliance with the new Opec quotas, Adnoc said it would cut its contracted volumes for crude production from the offshore Upper Zakum field by five per cent in November and December. The company said it would also reduce December supplies of Murban crude to its customers by 15 per cent, of Lower Zakum crude by 10 per cent, and of crude from the Umm Shaif field by five per cent.
The major Opec oil producer, Saudi Arabia, today affirmed its government's desire for a stable oil market. As reported by the Saudi Press Agency, its Cabinet emphasised during a meeting the kingdom's desire to avoid "extreme swings" in crude prices and to balance the interests of oil producers and consumers. But so far, Opec's first quota reductions since 2006 have failed to halt crude's breathtaking slump to about $64 a barrel from the record peak of $147.27 in July. Analysts have placed part of the blame for that on Opec's failure to enforce previous production cuts announced during periods of falling oil prices.
"Opec has difficulty managing markets in cyclical downturns," Guy Caruso, the US Energy Information Agency chief, said today at a conference in London. He said he did not yet know whether Opec's announced cut would be sufficient to stem the recent price decline. The Opec secretary general, Abdalla el Badri, said today the group would call another emergency meeting if crude prices continued sliding. Its next scheduled meeting is on Dec 17 in Algeria.
US crude touched a 17-month low of $61.30 on Monday, before recovering today to above $64 a barrel. The steep price slide has caused Opec and its traditional counterweight, the International Energy Agency (IEA), to raise strikingly similar concerns about world oil supplies. The IEA, which represents the interests of 28 industrialised oil consuming countries, warned today that restricted investment in oil production due to falling crude prices could cause a supply shortfall.
"Supply will become very tight again in the next several years," the agency's president, Nobuo Tanaka, told Reuters on the sidelines of the London conference. "We may see lots of impact on small upstream projects. There have been some talks that big projects may also get delayed. We are concerned about it." IEA warnings about low oil prices are rare. Barely a week ago, Mr Tanaka asked Opec not to cut production, arguing that such action could exacerbate the global economic downturn. However, the continued weakening of crude markets now has the IEA worried that prices could fall below levels needed to maintain sufficient world oil supplies in coming years.
"We have seen this financial crisis. The supply side, as well as the demand side, has been hit badly," Mr Tanaka said. On Friday, following its decision to cut quotas, Opec said the oil price collapse was jeopardising oil projects and could cause "a medium-term supply shortage". Nonetheless, some positive signs concerning energy investment surfaced today: the Qatari oil minister, Abdullah al Attiyah, said billions of dollars of energy projects under construction in the Gulf state were not under threat at current oil prices; and Tony Hayward, the chief executive of Britain's largest oil company, BP, said the company was "making good" on an earlier promise to boost production. "We are well placed to weather the prevailing financial storm and to benefit from the business opportunities that may well arise from a downturn," he said.
BP today posted net income of US$8.05 billion (Dh29.54bn) for the third quarter, up 83 per cent from $4.41bn a year earlier. In the short term, concerns about compliance with the reduced Opec production ceiling are likely to persist, given that the 56 per cent decline in crude prices since July is eroding the budget surpluses of Gulf states and threatening to slow or even derail the region's economic boom.
Still, the UAE's economy would continue to expand even if oil prices fell to $40 a barrel, Michael Tomalin, the chief executive of National Bank of Abu Dhabi, said today, addressing a sales meeting in London. "There is some way to go for oil before it has an impact on the economy," Hareb al Darmaki, the executive director of the Abu Dhabi Investment Authority, a sovereign wealth fund, told the same meeting.