Oil’s slide to the lowest level in four months shows Saudi Arabia may have succeeded in damping prices in the face of opposition from fellow OPEC members Iran and Venezuela.
US crude futures slumped almost 11 percent to $91.14 a barrel on June 20, the lowest since February, following the nation’s pledge two weeks ago to keep markets supplied after a meeting of the Organization of Petroleum Exporting Countries broke up on June 8 without an agreement. Oil would have to fall to as low as $82 a barrel for the Saudis to seek to stem the decline, according to Deutsche Bank AG.
“Saudi Arabia wants to show OPEC that it’s setting the price,” said John Sfakianakis, the chief economist in Riyadh at Banque Saudi Fransi, which says the country’s “breakeven” price for oil is $88 a barrel. “It has voiced its difference of opinion and calmed the market. They are nearing their fair price at the moment.”
The Middle East kingdom is increasing supplies amid concern that rising prices combined with the European debt crisis and efforts by China, the world’s fastest-growing major economy, to curb inflation will derail the global recovery. The International Monetary Fund last week lowered its growth forecast for the US, the largest crude consumer.
Saudi Arabia will boost supply to as much as 9.5 million barrels a day by August, or 3.7 percent more than it delivered in May, according to the London-based Centre for Global Energy Studies. Societe Generale SA said yesterday the kingdom may lift that to 10 million barrels a day, surpassing the record 9.9 million barrels a day reached in December 1980.
Since the collapse of the OPEC talks in Vienna, state-run Saudi Arabian Oil Co has found buyers in India, China and Japan for extra cargoes, three people with knowledge of the sales said.
The company, known as Saudi Aramco, also cut prices for July shipments of light crude to Asia and the US.
Saudi Arabia can control the price of oil because it holds more than 70 percent of OPEC’s 4.5 million barrels a day in spare capacity. The 12 nations that make up the producer group pumped 29.2 million barrels a day in May, equivalent to two out of every five barrels of the world’s crude.
“In the short term, the boost in output can push prices down,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co. “But spare capacity has dropped towards 4 million barrels a day. Going into next year, the market will look tight again. In the long-term, we need OPEC capacity to increase.”
Saudi Arabia still has no plans to boost capacity beyond the current 12.5 million barrels a day, Majid Al-Moneef, the Saudi OPEC governor, said in an April 18 report. The nation expects to maintain an untapped reserve of at least 1.5 million barrels for the next two decades, he said.
Saudi Arabia needs to sell its crude for at least $84 a barrel after King Abdullah promised in February and March to boost public spending by the most in 30 years in an effort to stave off unrest at home, a Bloomberg survey showed in April. The new commitments add $15.50 a barrel to the price the country needs to balance its budget, the survey showed.
The June 8 meeting of OPEC broke up after Algeria, Angola, Ecuador, Iran, Venezuela and Libya opposed a Saudi plan to raise production by 1.5 million barrels a day, Saudi Arabian Oil Minister Ali al-Naimi said following the talks. His country is “committed to supplying the needs of the market regardless of the disagreement,” he said.
