x Abu Dhabi, UAETuesday 25 July 2017

OPEC weighs further cuts

The organisation may ignore last-minute pleas from Washington to hold off on reducing supply.

VIENNA // OPEC ministers meeting in Vienna will weigh a further cut in oil production to lift prices despite a last-minute plea from Washington to hold off. The world's largest consumer of energy fears any increase in the cost of oil could further injure the limping global economy, but OPEC is determined to remove an overhang of crude oil in storage which is pressing down on prices. "We need to discuss how to drain inventories. We need to evaluate demand and see if it is necessary to take additional measures," Rafael Ramirez, the Venezuelan energy minister, told reporters shortly after his arrival in Vienna. His Iranian counterpart, Gholam Hossein Nozari, said there was too much oil on the market. The group has already agreed to cut by 4.2 million barrels per day (bpd) and so far implemented 80 per cent of this amount. "Compliance is very good," said Ali al Naimi, the Saudi oil minister, on his arrival in Vienna. "We would like to see compliance as high as possible. It is over 80 per cent now. It can be better." Total compliance with the already agreed cut would remove another 840,000 bpd, which many analysts think would be enough to compensate for waning demand and reduce swollen inventories. "Inventories are coming down and will come down in due time," Mr al Naimi said. But some countries, including Algeria and Kuwait, have pressed for another cut in OPEC's formal ceiling to pre-empt any more demand weakness over the next few months. David Kirsch, a director of PFC Energy in Washington, said OPEC's current output levels would probably remove the inventory overhang by September. But this could be too long to wait for some members of the organisation. "If they take more supply off, they can ensure the inventories come down even if demand falls further. If they want to be proactive, it would be a prudent move," he said. Industrialised nations, in the grips of the worst recession in at least a quarter of a century, fear that OPEC could be tightening the spigots too far. They believe rising energy costs could push back hopes of a global economic recovery. The International Energy Agency (IEA), which represents 28 industrialised nations, has warned consuming countries that full compliance with OPEC's existing agreement could tighten markets significantly by June. On Friday, Barack Obama, the US president, called King Abdullah of Saudi Arabia, the world's largest oil exporter and OPEC's most influential member, by telephone. Details of the conversation were not disclosed, but Mr Obama's energy secretary has twice called on OPEC to keep prices down. "We will continue to send a strong and clear message to OPEC nations about the importance of protecting the world economy from significant price increases that aren't good for any nation," Steven Chu, the US energy secretary, said on Friday night. Such interventions in the past have been highly divisive to OPEC, which includes a spectrum of geopolitical interests, including countries hostile to the US such as Iran. Mohammad Ali Khatibi, Iran's OPEC governor, said in an interview that OPEC would need to cut production if it wanted prices to rise quickly to between US$75 and $100 a barrel. That price level seems to be the "collective opinion" of oil producers and companies, he said. King Abdullah said last year that $75 was a fair price. Crude oil futures closed at $46.25 per barrel on Friday in New York. Asked yesterday if OPEC was pursuing a price target, Mr al Naimi said: "It is the price that the marginal producer needs to invest," declining to give a figure. OPEC faces a 61 per cent plunge in net oil revenue this year on a combination of lower prices and declining production, according to the US Energy Department, which estimates OPEC will earn $383 billion (Dh1.4 trillion) this year from crude exports. The drop in oil prices is equivalent to a $1 trillion stimulus package to the world economy, according to the head of the IEA. But many in OPEC are expected to post a fiscal deficit this year and are more concerned about balancing their own books. "We don't want to hurt the international economy, but at the same we don't want to hurt ourselves," said Sheikh Ahmed al Sabah, the Kuwaiti oil minister. "It is a very difficult equation. It is still undecided." tcarlisle@thenational.ae