Abu Dhabi: The Organisation of the Petroleum Exporting Countries (Opec) countries might have to go for much deeper cuts in production later to stabilise prices, according to a Dubai-based energy expert.
“They have to go for a cut of two million barrels per day in March to increase the prices. Cut in the output of 500,000 to one million barrels per day would have sent a positive signal to the market,” said Sean Evers, managing partner of Gulf Intelligence, an energy consultancy in Dubai.
Opec decided to keep the output ceiling at 30 million barrels per day at a crucial meeting in Vienna on Thursday.
UAE Minister of Energy, Suhail Mohammad Al Mazroui, said the country will not reduce its investments in the oil sector due to the fall in prices. The country is intending to increase the output from 2.8 million barrels per day to around 3.5 million barrels per day by 2017.
Evers said a lot of Opec countries are heavily dependent on oil money for their expenditure. “They could face a social instability if the prices continue to fall and revenue decreases. It is a matter of bread on the table for many countries. Some need oil revenue desperately to sustain social programmes.”
He added that oil prices will further decline in search of a floor. “Over supply is tremendous and there is a weak demand in the market. Prices might go up a bit if there is a cold winter in the US but they are likely to remain lower in the coming days,” he pointed out.
Oil service companies, meanwhile, said they will have to cut down on costs if the oil prices continue to fall. “Jobs will be reduced if the prices drop. There has been loss of revenue to the oil companies. It is important to decrease production to 2 million barrels per day. China has slowed down and Europe is going through a recession,” said Syed Khizar Edroos, chairman of Excel industries.
Fall in prices has been a cause of concern for many oil producing countries like Venezuela, Iran, Oman and Russia. Venezuela called for an emergency meeting last month to take stock of the situation. The country is heavily depended on oil revenue to meet its budgetary needs.
Iran is likely to face a budget deficit if the prices continue to slide, experts have said. The country is under sanctions over its nuclear programme and is likely to increase its output if the negotiations with Western countries yield positive results. Gulf countries did not feel the pressure of the prices because of the sufficient oil revenue generated over the years.
Nearly one-third of the world’s oil supplies are supplied by 12-member Opec group. It has had a group output quota of 30 million barrels per day for the last three years.
