Riyadh: Opec has urged a committee to prepare “options” for how much oil it should produce next year to prevent the market slipping back into oversupply, the clearest sign yet that the group could reduce output to avoid prices falling further. The rise in oil inventories in recent weeks coupled with fears about an economic slowdown next year “may require changing course”, the Joint Ministerial Monitoring Committee that oversees the agreement between Opec and its allies said in a statement.
Crude has dropped after reaching a four-year high this month on concerns over demand.
Opec has recently been talking about preventing prices from rising too much. Saudi Arabia Energy Minister Khalid Al-Falih said this week the group is in a “produce as much you can mode” to meet demand and replace any looming shortages. Yet, stockpiles have increased in the US and are back at levels they were at the start of this year.
This is threatening to bring back oversupply which could push prices too low.
Brent crude, the global benchmark, has declined more than 7 per cent this month as Saudi Arabia and Russia boosted supply and American inventories rose. One of the biggest concerns for the oil market is demand. A trade war between the US and China is threatening to hit global economic growth and thus affect energy consumption.
The International Energy Agency and BP Plc boss Bob Dudley have warned oil prices have reached levels that could affect demand, especially in emerging countries already struggling with weakening currencies.
There is currently “a very comfortable supply level relative to demand,” according to the JMMC statement. Opec and its allies — known as Opec+ — want to maintain this balance that they fought so hard to achieve by slashing production through 2017 and much of this year.
Having brought global inventories back to their five-year average levels, many Opec+ members including Russia are now increasing output to offset disruptions in Venezuela and Iran.