OPEC oil ministers meeting in Vienna Friday made a major change in policy by issuing an official communique that did not contain a reference to any official production ceiling.
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“Keeping OPEC’s policy the same heralds the start of a new era of speculation as to what levels oil prices could drop, especially with the slowing down of the global economy”.
There was no mention of a new production ceiling in the final statement of the event, apparently permitting member states to keep producing oil at current rates.
“While vocal calls for action to support prices have come from Algeria, Venezuela and Ecuador, the Saudis and their Gulf Cooperation Council allies have given every indication they will stay the course on maintaining market share”, investment bank Jefferies said. Asked about the ceiling at the news conference, Mr. Kachikwu and OPEC Secretary General Abdalla Salem el-Badri emphasized that the group would continue at the “current production level”.
While smaller OPEC members have been pressuring the larger producers to cut, Saudi Arabia appears determined to try and protect market share. According to the U.S. Energy Information Administration, American oil producers produced an average of about 9.3 million barrels of crude oil per day in June, the latest data immediately available, adding to the global oversupply.
He disclosed that world oil demand this year grew by 1.5 million barrels per day, up from 1 million barrels per day last year.
Iran won’t accept any production curbs until it restored about 1 million barrels a day of output, Oil Minister Bijan Namdar Zanganeh said on Friday before sitting down with his OPEC counterparts. The agreement to keep output near record highs was largely expected, but wiped out any remaining hope for bulls that production cuts could push prices higher, sending ripples across wider markets. “Americans don’t have any ceiling, Russians don’t have any ceiling, why should OPEC have a ceiling?” The world is already producing up to 2 million bpd more than it consumes.
Iraq’s oil minister echoed those sentiments, asking after the meeting why OPEC members should accept a production cap if non-OPEC oil producers do not have one.
“The pressure will build on Opec and oil prices”. The group also needs to prepare for increased shipments from Iran when worldwide sanctions are lifted.
That is likely to exacerbate tensions within the group further if it continues to depress global oil prices. The Conference observed that, since its last meeting in June, oil and product stock levels in the OECD have continued to rise. How production outside the cartel responds to prices over the next six months is also under consideration.
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Surging oil production from non-OPEC nations like the USA has created a deep divide inside OPEC.
