Crude futures slide by more than $1/bbl ahead of OPEC meeting

James Dennis

27-Nov-2014

By James Dennis

Crude futures slide ahead of OPEC meetingSINGAPORE (ICIS)–Crude futures declined by more than $1/bbl on Thursday, hitting new four-year lows, amid concerns that OPEC will not agree to cut production when it meets later on Thursday in Vienna.

At 05:48 GMT, January Brent crude on London’s ICE futures exchange was trading at $76.49/bbl, down by $1.26/bbl from the previous close. Earlier, the North Sea benchmark fell to a session low of $76.28/bbl, down by $1.47/bbl and the lowest level since 7 September 2010.

January NYMEX light sweet crude futures (WTI) were trading at $72.71/bbl, down by $0.98/bbl from the previous close. Earlier, the US benchmark fell to a low of $72.61/bbl, down $1.08/bbl, and the lowest level since 1 September 2010.

Expectations that OPEC will not cut production target heightened after Saudi Arabia’s oil minister Ali Al-Naimi said on Wednesday that the oil market would stabilise itself.

Arab Gulf OPEC members were reported to be in agreement over output plans, although he did not elaborate on what those plans are has not been disclosed.

Iran’s oil minister Bijan Namdar Zanganeh has also indicated that Tehran’s view on the oil market was close to that of Saudi Arabia.

Other OPEC members, such as Venezuela and Libya, whose budgets have been significantly strained by the slump in oil prices  have been more vocal in calling for cuts in OPEC output.

Oil prices have plunged sharply in recent months, with ICE Brent crude futures having fallen by more than 30% since hitting the highest level this year at $115.71/bbl in June 2014. 

Oil prices have been undermined by increased US crude production which, boosted by shale oil,  hit 9.08m bbl/day last week, the highest level since weekly records started in January 1983.

Higher US production has helped lift global oil production in October to 94.2m bbl/day according to the IEA, up 2.7m bbl/day from the previous year. Meanwhile, the IEA has forecast global oil demand in 2014 will total just 92.4m bbl/day, an increase of 680,000 bbl/day on the previous year. This is the lowest annual increase in demand in five years.

Demand has fallen to  amid weak economic  conditions in Europe and Japan and a slowdown in China.

There are concerns among OPEC members that cutting production would only result in a loss of market share for the organisation member states.  OPEC members like Saudi Arabia have been actively defending  their market share in the US and Asia with cuts to their official selling prices.

OPEC members presently account for around 40% of global oil production. The member states have a crude oil production target of 30m bbl/day. However, following increased output this year from Libya and Iraq, the members have been exceeding this production target. In October, OPEC crude production was 30.6m bbl/day, according to the IEA.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

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