Ejiofor Alike with agency report
Crude oil prices yesterday fell by over three per cent ahead of today’s meeting of the Organisation of Petroleum Exporting Countries (OPEC), as the oil market was not convinced that the cartel will reach a deal to cut production following the disagreement within the group and among non-members.
While some OPEC members have been singing discordant tunes, Russia, which is not a member, had indicated that it was only interested in holding production at 11.2 million barrels a day.
A freeze, Russia reportedly said, was essentially a reduction because it plans to increase output next year.
OPEC members – Indonesia and Iran – yesterday expressed some reluctance to commit to a production cut at today’s meeting.
Analysts have predicted that if today’s meeting ends inconclusively, oil prices could fall to as low as $35 per barrel.
The initial optimism that OPEC could limit production at today’s meeting, resulting in a price rally in recent weeks, was said to have been dampened by comments from the cartel’s officials, thus sowing doubts over its ability to reach an agreement.
Light Sweet Crude futures for January delivery yesterday declined $1.66, or 3.5 per cent to $45.42 a barrel on the New York Mercantile Exchange, on track to close at a two-week low.
Brent, the global benchmark, was also down $1.73, or 3.6 per cent, at $46.51 a barrel.
The Wall Street Journal reported that oil ministers from Indonesia and Iran expressed some reluctance yesterday to commit to a production cut, sparking concerns over a contentious meeting and a potential deadlock.
Indonesia’s oil minister said his country had not decided yet whether to join production cuts or not and that he had “a mixed feeling” about the gathering’s outcome.
Iran’s oil minister said he intended to follow production plans previously set that would make the country exempt from output cuts.
Germany’s Commerzbank said the main hurdle for the meeting will be Saudi Arabia’s insistence that Iran caps production at 3.7 million barrels a day, while Tehran is insisting on a cap of around 3.97 million barrels a day.
In September, OPEC agreed on targets that would have translated into production cuts of 200,000 to 700,000 barrels a day.
Russian and the Iranian president reportedly made public that they held a phone conversation to discuss the OPEC meeting.
One of the key hurdles to the production accord is Russia, which is not a member of OPEC.
OPEC will also struggle to nail down production quotas for member nations as several countries—such as Nigeria and Libya—have requested exemptions because their oil production and exports have been hurt by militant attacks.
In addition, OPEC does not have the authority to make members comply with their production assignments.
It is anticipated that if OPEC decides to abandon its pledge to cut output, oil prices will be hit hard in the short term.
In the US where many oil producers were forced out of the market when prices dropped below $40 a barrel, there are signs of resilience.
The latest report from the US Energy Department showed domestic crude production is likely to hit 8.7 million barrels a day in 2017, which is 100,000 barrels a day higher than the previous estimate.
Production elsewhere is also climbing as North Sea producers, who have been troubled by rising costs and high taxes, recently increased output to a three-year high, thus indicating that any OPEC agreement would have a limited impact on the global crude glut.