Business | Oil & Gas
Oil supply to be cut by Opec to maintain fair price for all parties
Oil's fall further below Saudi Arabia's "fair price" of $75 a barrel (Dh275.5) will increase pressure on Opec to set aside real or imagined differences and cut supply further when it meets later this month.
- Reuters
- Published: 23:25 December 2, 2008
London: Oil's fall further below Saudi Arabia's "fair price" of $75 a barrel (Dh275.5) will increase pressure on Opec to set aside real or imagined differences and cut supply further when it meets later this month.
The market slid nearly $5 to below $50 a barrel on Monday after Opec at the weekend deferred a decision amid signs that Riyadh and its Gulf neighbours wanted tighter compliance, especially from Iran and Venezuela, to curbs already in place.
Some members, including Iran and Venezuela, are pushing for a deeper cut when the Organisation of the Petroleum Exporting Countries, which pumps 40 per cent of the world's oil, meets on December 17 in Oran, Algeria.
Saudi King Abdullah Bin Abdul Aziz announced the $75 price in an interview with a Kuwaiti newspaper.
Saudi Oil Minister Ali Al Naimi, speaking for Opec's top exporter, has yet to publicly back an output cut, leaving traders uncertain on Saudi oil policy.
"There's no doubt Opec needs to take more oil off the market in Oran," said Raja Kiwan, analyst at PFC Energy.
"If Al Naimi wants to play hard ball with Iran and Venezuela by letting the price fall and stocks build - King Abdullah's comments have limited his flexibility."
Other Opec members such as Nigeria and Kuwait support the Saudi view that $75 is fair to both producers and consumers.
Analysts say a disagreement over the need to enforce oil supply cuts or deepen them is likely to push prices further below that level in the run up to the group's meeting in Oran.
"It is a very dangerous time for Opec," said David Hufton at brokers PVM in a report.
"Opec's indecision has ensured that oil prices will start on the back foot and will struggle to avoid moving back below $50 a barrel and reactivating the downside targets towards $40."
Many in Opec, including Secretary General Abdullah Al Badri, say another reduction in supply is very likely.
"We are all geared towards a cut in Algeria ... the market is oversupplied because we are seeing stocks as very high." said Al Badri.
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