OPEC keeps oil ceiling but may tap Saudi if current crude oil prices drop
OPEC members recently agreed to retain current oil production ceilings, but Saudi Arabia might carry the brunt of this decision. It may have to curtail its domestic oil production in the event current crude oil prices plunge further down below the $100 pb mark.
Abdalla El-Badri, OPEC Secretary-General announced that the organization will have to cut total output by around 1.6 million bpd to keep it from exceeding the 30 million bpd ceiling. Some analysts have pointed out that Saudi’s over production has pushed crude oil price per barrel further down.
Prestige Economics LLC Head, Jason Schenker said that, despite Saudi’s possible role in keeping the ceiling, the country will ensure that the world market will continue to get sufficient supply of oil. Come July 1, the oil embargo on Iran will be in full swing, and cuts in Iranian oil output will also help keep ceilings at the 30 million bpd level.
Saudi stepped up production beyond OPEC limits to temper soaring prices of Brent crude in March this year, but prices have since gone down below the $100 mark amid the looming EU financial crises.
Al-Naimi called on OPEC to consider raising the ceiling by the second semester to keep up consumer demand. This will also help lift the burden among consumers who are affected by high crude oil prices, he said.
While majority of OPEC members have been pushing for supply cuts, Qatar officials believe there will be enough demand ready to take up the extra supply on the second semester. In fact, by next quarter crude demand is estimated to grow to 30.9 million bpd.
Ali bin Ibrahim Al-Naimi, Saudi Oil Minister said “The whole idea is that there will not be any shortages in the market. That has been Saudi Arabia’s policy all along. To manage stability of the oil market, keeping it in balance.”
However, some experts remain skeptical if Saudi will consent to cut local production at all. Petroleum Policy Intelligence CEO Bill Farren-Price predicts the country will continue to meet clients’ demands and will only cut production if demand has weakened.
Petromatrix GmbH Managing Director Olivier Jakob noted that OPEC maintained the oil ceiling because Saudi is disinclined to cut oil production to OPEC’s satisfaction and simultaneously attempt to fill the supply gap created by Iran to please G-20 members.
But then Hani Abdulaziz Hassain, Oil Minister of Kuwaiti, disclosed that supply cuts within OPEC are going to be a collective move. So far, no country has been singled out to do it. For now, it’s going to be a wait and see situation.
OPEC will hold another meeting to discuss more oil issues come December 12.