Inventories of crude oil held by developed countries have risen above the Opec’s comfort level, the oil cartel warned on Friday as its member countries’ ministers arrived in Cairo to discuss whether to cut their output further.
Adulla El-Badri, Opec’s secretary-general, said “the market is oversupplied” and called the rising oil inventories in consuming countries “a concern”.
Crude oil inventories in the OECD countries at the end of the third quarter were enough to cover 55 days of demand – three days more than Opec generally targets.
High oil storage levels usually signal low demand. In addition, the more oil that consuming countries have in storage, the less power Opec has to control prices because consuming countries could in theory release those supplies into the market and depress prices.
Meanwhile, data published this week by the US energy agency showed September demand in the US – Opec’s biggest customer – had been lower than previously thought.
US demand in September plunged by 2.6m barrels a day, or nearly 13 per cent, to 17.8m b/d. That is the biggest percentage decline since August 1980 and pushed demand to levels not seen in 12 years.
The data helped further depress prices, which have fallen dramatically from the $147 record set in July. Benchmark Brent oil futures traded in London on Friday were down 25 cents at $52.88 a barrel and WTI crude futures in New York fell $1.06 to $53.38 in very thin trading due to the Thanksgiving holiday in the US.
Abdullah bin Hammad al-Attiyah, Qatar’s energy minister, on Friday hinted that Opec had only limited power to stop the price fall. “The market is very related to the global crisis. There’s pressure on demand,” he said.
Gholamhossein Nozari, oil minister of Iran, one of Opec’s most hawkish members, on Thursday took a more measured approach than usual, saying: “We [will] prepare some more information and will make a final decision maybe in Algeria.” Opec next meets in the Algerian port of Oran on December 17, by which time the group should have a better idea of how much it has already actually cut.
Mr Nozari, added: “We should monitor the market and try to balance meeting supply and demand.”
Venezuela has also lowered its expectations, saying that Opec could wait until next month.
In total, Opec has agreed over the past two meetings a production cut of at least 2m b/d, with 1.5m b/d of those cuts having had a November 1 deadline.
In October, the active members of Opec produced about 29m b/d out of total output of 86.9m b/d, according to the International Energy Agency, the developed countries’ watchdog. That put Opec significantly above its target of 27.31m b/d, but analysts said November production was lower and that Opec had so far adhered to about 1.2m b/d of their cuts.
More and more Opec members – including Libya, Iran and Algeria – have voiced their wish for prices of around $70 a barrel, though analysts believe Saudi Arabia, the cartel’s most powerful member, and some of its Arab neighbours, could live with substantially lower levels.
Ali Naimi, the influential Saudi energy minister, declined on Friday to answer any questions about the kingdom’s thinking, leaving open the possibility of a surprise cut.
That would please Iraq, which is an Opec member but is not subject to the cartel’s production cuts because of its struggles under sanctions and then in the aftermath of the US invasion.
Hussain Shahristani, Iraq’s oil minister, said: “We support a production cut. We support a reduction now.”
