Abu Dhabi: Experts have predicted that oil prices are likely to fall further unless supplies are cut by the oil producing countries.
The Organisation of the Petroleum Exporting Countries (Opec) are due to meet on November 27 to take a decision on whether to cut production to stop the slide of prices.
“There are surely signs that Opec is willing to cut oil production to maintain certain price levels. The most obvious example is that cut of over 400,000 barrels per day by Saudi Arabia that was announced last August,” said Tim Boersma, a fellow of energy security initiative at the Brookings Institution in Washington.
He said that prices fell with some other producers ramping up production and the continued growth of the US oil production.
“We shall see whether Opec wants to further scale down production or at what price level US production will come under pressure.”
Brent crude futures slid below $90 a barrel on Friday for the first time since June 2012 on concern global demand is slowing while supplies increase.
There are already calls for holding an emergency meeting of Opec to take a stock of the situation.
Venezuela’s Foreign Minister Rafael Ramirez has called for an urgent meeting to discuss the matter, media reports said. According to him, Opec has to co-ordinate some type of action to stop the price fall.
“It’s a price that doesn’t suit anyone and there is a significant over-production,” Reuters quoted Ramirez as saying.
“It’s always been our position within Opec to seek stability in the oil market. It doesn’t suit anyone to have a price war, for the price to fall below $100 a barrel.”
Richard Mallinson, a Geopolitical Analyst from Energy Aspects in London said that there should be a seasonal improvement in demand and refineries return from maintenance in winter.
“However, the oil market remains oversupplied and there have been large stock builds. So we are likely to see Brent falling further unless supplies are cut back,” he said.
Dubai based Asiya Investments in its weekly analysis said that oil prices will not decline in the long run.
“Two key producers, the United States and Saudi Arabia will probably reduce supply if prices keep declining. In the case of the United States, the reduction in output would come due to the fact that extraction costs in the new shale fields are too high to remain competitive after a period of low prices,” the report prepared by Francisco Quintana, head of research at Asiya Investments said.
In the case of Saudi Arabia, the report said the IMF estimates that Saudi needs more than $80 a barrel to be able to balance the budget. “Incentives to cut production to support prices are higher now than in previous periods of low prices,” the report said.
“A few months of prices below current levels will probably reduce output and support prices back to previous levels.”
Boersma believed that the winter will have an upward effect on oil prices, but to what extent is hard to predict.
“There is of course speculation going on about where oil prices could fall too, and some analysts believe that $70 oil is well possible,” he added.
