By Jason Simpkins
The Organization of Petroleum Exporting Countries today (Tuesday) signaled it would hold output steady in coming months despite the significant drop in crude oil prices that has taken place over the past nine weeks.
Members of OPEC were scheduled to meet September 9, but the final press conference, when the group formally announces its decision, won't come until 3:00 a.m. on Sept. 10 to accommodate the observance of Ramadan. But before the meeting, several OPEC oil ministers suggested the group would maintain output despite a steep drop in oil prices.
"We have worked very hard since June's meeting to bring prices to where they are now," Saudi Oil Minister Ali al-Naimi told reporters in Vienna."I think everything is in balance – inventories are in a healthy position."
That sentiment was echoed by Rafael Ramirez, Venezuela's energy and oil minister.
"Venezuela will support leaving production unchanged" at today's meeting, Ramirez said. "Stocks are at a comfortable level and we're seeing an overproduction of 1 million to 1.5 million barrels a day."
Meanwhile, light, sweet crude for October delivery fell $3.45 (3.24%) yesterday to settle at $102.89 a barrel. Prices have plummeted nearly 30% since hitting a record-high $147.27 on July 11.
Fearful the price will drop below $100 a barrel, member nations Iran and Libya lobbied to reduce production ahead of the meeting.
"I hope that in OPEC's meeting this evening the ceiling of members' output is put back to their previous commitments to balance the world's crude market," said Mohammad Ali Khatibi, Iran's OPEC governor.
Still, as the world's largest petroleum exporter, Saudi Arabia carries far more weight than either Libya or Iran. And with Venezuela's support there is little, if any, chance OPEC will tighten production levels.
"A production cut would not serve much of a purpose," OPEC President Chakib Khelil said in an interview with Bloomberg Television, because it would not halt the decline in prices. "Rather, it will damage the advantage the organization has got by making a positive gesture toward consuming countries," Khelil said.
While no member of OPEC wants an oil price correction to morph into a freefall, prices ranging from $125 to $150 a barrel threaten demand, and even threaten the global economy.
Saudi Arabia called an emergency energy summit in June, as prices approached their peak, and agreed to boost oil production by 500,000 barrels a day. At the time, many analysts dismissed the offer as a token effort to placate the United States, but the additional production, as well as a resurgent dollar, has been an important factor in lowering prices.
"The last thing OPEC wants is to see economies crater around the world," Chip Hodge, a managing director at MFC Global Investment Management, told Bloomberg. "They want to see strong demand growth."
The question that remains, however, is how far the price of oil has to drop before Saudi policymakers take action. Saudi sources insist they don't have a target and are simply attempting to keep the market well supplied. But right now, $100 a barrel seems to be the point of balance.
"We need to be careful that there won't be a price collapse but that is something that does not look probable," said Venezuela's Ramirez. "Looking at speculation, the dollar and other factors that have been affecting the market, maybe we are going to come to an equilibrium at around $100 a barrel, perhaps this is the level of the market."
News and Related Story Links:
- Money Morning:
With OPEC Meeting Looming, and Emerging Markets Growing, Oil Prices May Only be Temporary