On November 4, crude oil prices tumbled further to multi-year lows as price cuts by Middle Eastern producers signaled that a global glut will continue to grow. A day earlier, US oil futures tumbled 5% after Saudi Arabia, the world’s largest oil exporter, unexpectedly cut prices for crude sold to the United States. Meanwhile, Riyadh raised the prices for its oil in other locations, including Asia, where the country had cut its prices for four consecutive months.
Investors took that as proof that the Organization of the Petroleum Exporting Countries (OPEC) is unlikely to cut production to reverse the oil market’s slide. OPEC’s next meeting is on November 27.
On November 4, light, sweet oil for December delivery recently fell $2.10, or 2.7%, to $76.68 a barrel on the New York Mercantile Exchange, the lowest intraday level since October 2011. Brent, the global benchmark, fell $2.22, or 2.6%, to $82.56 a barrel on ICE Futures Europe, near four-year intraday lows.
OPEC representatives haven’t even mentioned a cut in production.
Saudi Oil Minister Ali Al-Naimi has said the Riyadh is following the market. “Therefore what he was saying is that Saudi is not controlling the market, it is following the market,” Institute of Energy for South-East Europe (IENE) Executive Director Costis Stambolis told New Europe on November 4 in Athens, adding that “Saudi reached a point where to announce discounts”. Last month, Saudi Arabia reduced the price of Arab Light crude for Asia to the lowest since December 2008.“That was a sign that the market is definitely going downwards,” Stambolis said.
Asked whether OPEC is going to reach a decision to limit the supply as it has always been the case at times when prices are going down due to a supply glut, the IENE executive director said that in the past Saudi Arabia was carrying the burden of this supply cut.
“In a way Saudi Arabia is fed up because every time there was a decision to limit the production, Saudi was taking the lion’s share and the other members were not following. They were getting the benefit of high price but they were not following as far as reduction in production is concerned,” Stambolis said, adding that only Kuwait followed Riyadh in cutting production.
“Now Saudi Arabia is sending a very clear message to its fellow members at OPEC: ‘Look I’m not prepared any more to defend high prices and I don’t care where prices are going to go but if we’re going to reach a decision about prices all of you have to participate,” he said.
Saudi Arabia, the world’s majorswing producer, is also sending a message to the US government to put a restraint on oil and gas, especially oil from the tight oil fields that are now developing. “And, of course, since the US government cannot impose a ceiling, it will be imposed through a price reduction,” he said.
The indication that prices would go down started this summer. “At the time that ISIS was invading Mosul and Northern Iraq and prices started going up because of the uncertainty, towards the end of June prices started declining. “Last summer gradually we started seeing tankers hovering around the globe – from the Gulf to South Africa, from South Africa to Gibraltar, from Gibraltar to the East Coast - not being able to offload so that was indication that there is an oversupply in the market,” Stambolis said, adding that by early September this trend increased.
“If you are a tanker which has left its loading destination to go to offload and is unable to offload and either anchors at bay somewhere or moves around, the next deal that is going to be done by a refinery or major buyer will factor in that there are loads of oil which are not being delivered so the price that he will offer to the seller will be influenced. In other words, we are switching from a seller’s market to a buyer’s market,” he said.
There is plenty of oil in the market. Russian oil production has not fallen despite the Western sanctions against Moscow. “Russia is not a member of OPEC. The existing fields have to been affected. What has been affected in Russia as a result of the sanctions is all the new development, especially in the Arctic,” Stambolis said.
He added that oil output from Libya is increasing and Iraqi oil production has not being affected and is very well defended against ISIS. “That was one of the reasons the price went down because they could see what was going on in the area but Iraq was maintaining production so that was a very positive message in the market,” Stambolis said.
He predicted that the oil price for Brent will reach $80 per barrel or even drop a little less. “Then certain members of OPEC and tight oil producers in the US will start being affected. But I don’t think the prices are going to rebound very soon. It’s a cycle; it will take a few months or even a year for the market to balance,” he said.
Weak European oil demand has been a key factor in pushing prices lower in recent months. The European Commission said on November 4 it expects the eurozone’s gross domestic product to grow 0.8% this year, down from its prior forecast of 1.2% growth. The Commission expects the eurozone economy to grow 1.1% in 2015.
Meanwhile, more oil is expected from the North Sea. Oil services company Maersk Oil said on November 3 that the 70,000 barrels of oil expected from the Golden Eagle field in the North Sea represents a regional milestone. Maersk holds a minority stake in the Golden Eagle development area in the North Sea alongside China National Offshore Oil Corp. The two wellsnow in servicein the area are producing around 18,000 barrels of oil per day and output should reach 70,000 barrels per day by next year. Oil production from the North Sea has been in decline since the late 1990s.
http://www.neurope.eu/article/saudis-play-market-oil-glut-drives-down-prices