Prospects appeared dim again for crude oil prices on January 13. Brent and US WTIcrudeoilprices fell to their lowest levels in almost six years as the United Arab Emirates, a big producer of the Organization of the Petroleum Exporting Countries (OPEC) stood by the cartel’s decision not to reduce production to stop crude oil prices from plunging further.
On January 13, FebruaryBrent crudewas down $1.06 at $46.37 a barrel, after dipping to $45.23, its lowest since March 2009. US crudefor February was down $1.15 at $44.92 per barrel, off an intraday low of $44.21.
Rather than cutting output to try to balance the market, OPEC producers are offering discounts to customers in an attempt to defend market share. “It’s in the hands of Saudi Arabia first,” London-based energy expert ManouchehrTakin told New Europe, referring to the OPEC kingpin.
“Then it is the rest of OPEC, which includes some countries which are in the same line as Saudi policy openly - like Kuwait, UAE and Qatar. The other members of OPEC have followed in silence. They’re not happy - like Venezuela, Nigeria, Iran and Algeria, but they have not challenged that,” he said, adding that Saudi Arabia’s Oil MinisterAli al-Naimi knows the real intention of the Saudi King’s policy and what is the endgame but sometimes even he might overruled by the authorities in the kingdom.
“It appears that some princes in the royal family are a bit apprehensive because they have made a few statements but there’re significant because there were no statements in previous occasions,” Takin said.
Meanwhile, United Arab Emirates’ Oil Minister Suhail bin Mohammed al-Mazroui said on January 13 that OPEC’s November decision not to cut output had been the right one. “The strategy will not change,” he said. By not reducing output, “we are telling the market and other producers that they need to be rational.”
But Venezuelan President Nicolas Madurosaid on January 12 inIranduring a tour of Middle Eastern OPEC members that prices need to return to $100 a barrel for economic equilibrium.
Goldman Sachs cut its six month prediction for WTI from $65 to $39 per barrel. Crude has to “stay lower for longer” if investment in shale is to be curtailed to re-balance the global market, according to Goldman analysts.
The oil price has now fallen by more than half since June, when the price stood at $110 per barrel. Decisions from Saudi Arabia, the de facto OPEC leader, to keep its output steady despite oversupplies are helping drive the price of oil downward.
Moreover, production from North American shale companies has increased the supply of oil and gas, reducing prices. Slowing global economic demand and a rising dollar against a range of other currencies are also undermining the oil price.
While the low price of oil has been a source of de facto stimulus for consumers paying less for energy products like gasoline, the climate is negative for oil producing countries that depend heavily on export revenue like Venezuela, Iran and Russia.
Several international oil companies have cut their spending plans for 2015 and now, secondary businesses like pipe makers and rig builders are pulling back because of deteriorating market conditions.
Shell Chief Executive Officer Ben van Beurden said somefinancial flexibilitywill be needed to steer the company through current market conditions.
Takin told New Europe on January 12 that Saudi Arabia’s policy is to challenge non-OPEC, high-cost oil producers. Saudi officials have said OPEC cannot go on defending the price of oil by reducing its oil production and losing its market to its competitors, including the United States, independent oil companies and the shale oil producers.
Producers with high-production cost boosted production and profited by OPEC’s previous efforts to achieve an oil price around $100, taking the oil cartel’s share in the market, Takin said. By trying to bring the oil price down the Saudis are trying to bankrupt non-OPEC producers or force them to cut production.
http://www.neurope.eu/article/opec-sticks-its-guns-oil-prices-fall