An internal OPEC document exclusively viewed by the Wall Street Journal showed the cartel, which supplies around 40% of global oil supply, believes if it trims daily output down to 30 million barrels versus the current 31.5 million, it ” would not be sufficient to completely clear the current supply overhang”, due to large inventories.
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Non-OPEC countries like Russian Federation and the USA continue to challenge OPEC for customers.
Oil prices have slumped about 40 percent since Saudi Arabia led the group’s decision a year ago to defend market share.
Indonesia’s re-entry “would simply acknowledge the reclassification of Indonesian output from non-OPEC to OPEC production, it would not amount to an increase in overall global supply”, said Julian Jessop, analyst at Capital Economics research group.
OPEC’s recent strategy has been to flood the market in an effort to drive out higher-cost producers like US frackers.
The upcoming OPEC meet in Vienna on Friday seemed to be headed to a stalemate as member states reportedly clashed over production cuts to boost oil prices at a pre-meeting Thursday. Such a cut would be conditional on the participation of non-OPEC producers including Russia, Mexico and Kazakhstan and wouldn’t be agreed on Friday, according to the report.
OPEC members are feeling the pinch, and some like Iran and Venezuela, want Saudi Arabia to cut back its production, now more than 10 million barrels per day. Opec decided in November previous year and again in June to keep its production quotas unchanged, after exceeding its target of 30 million barrels per day in each month since June 2014.
As Iran ramps up production, for frackers in oil rich areas of the USA, reality has since set in. “Saudi Arabia is in no mood to cut output, especially as a collective cut remains elusive amidst rising financial stress among other major OPEC and key non-OPEC members”, consultancy Energy Aspects said.
OPEC sources and analysts said the Saudi proposal would be hard to agree as Iraq is struggling to balance its budget even despite soaring output and Iran has long argued its market share was stolen by rivals during the years of sanctions.
Crude oil (WTI) is jumping 3.51% to $41.34 per barrel and Brent crude is surging 4.1% to $44.23 per barrel, according to the CNBC.com index.
Some of those extra barrels will likely come from Iraq.
Ahead of their meeting Friday, there is recognition that the 12-member Organization of the Petroleum Exporting Countries will be unable to nudge up prices, at least in the short term.
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For Saudi Arabia, low oil prices and the prospects of big fiscal deficits have already prompted officials to float the idea of potentially unpopular reforms, including introducing a value added tax and cutting energy subsidies.
