Abu Dhabi: A longer period of lower prices would be a test for the unconventional producers like the US, an expert from Brookings Institution in Washington said.

“Can US producers maintain output and keep drilling, or will some of the producers in particular the smaller ones have to lay off rigs and personnel, because they need continued high oil prices to finance operations?” pondered Tim Boersma, a fellow of energy security initiative, about the drop in oil prices.

He added that larger producers are likely able to sit this out — depending on duration and price level of course — and some estimates suggest that most unconventional production in the US is not at break-even level yet.

“It is around 75 dollars according to Wood Mackenzie, as low as 60 dollars according to IEA. Things are not clear at the moment.”

Goldman Sachs has predicted that the price for Brent Crude, an important benchmark for global oil supplies, will fall as low as $80 per barrel in the second quarter of next year, according to media reports.

Oil prices have already taken a hammering this year, having slumped nearly 25 per cent over the past five months. Brent crude futures fell below $86 per barrel following the publication of Goldman Sach’s note.

Tim said we should not expect major decisions at The Organisation of the Petroleum Exporting Countries (Opec) meeting in late November.

“It seems that off the record Saudi officials have indicated that they can live with a lower price level for a longer period. They realised that very significant production cuts are required to maintain a certain price level, and they are not willing to carry the burden alone.”

“Having taken 407,000 barrels per day off the market in August, this has not had a meaningful impact on prices, driven by a variety of reasons, e.g. disappointing demand, increased efficiency, and surprising output from several countries, including Libya, Nigeria. Hence, Saudi Arabia may send a signal to other Opec members: we have to do this together, or we are not moving either.”

He said Russia is producing record volumes, and US production continues to grow. “Saudi Arabia may like them to chip in as well.”

Opec countries are due to meet on November 27 to discuss the current situation. Some member countries have already said there will not be any cut in the production.

Francisco Quintana, head of economic research at Asiya Investments, said Opec producers outside the Gulf are too cash-strapped to be able to make the strategic decision of cutting production to support prices.

“Think of Iran, Iraq, Algeria, Libya, Angola. All of them are going through a very complex fiscal situation. Cutting production requires a strong leadership, a strategy, and some cash in your pocket. At least two out of these three are missing in most Opec countries.”

He said Saudi has learnt its lesson after the sour experience of the 1980s, when they cut production, prices remained unchanged, and they lost market share in some countries.

“Global demand for oil now is too weak to afford losing a client. Competition is fierce, particularly for Asian demand.”

He did not forecast strong changes in coming days. “On the demand side, economic fundamentals are still weak, and will remain so for a while.”