Skip to main content

OPEC meets to discuss cutting oil production

Oil prices fell in Asia on Wednesday, amid expectations the cartel will maintain high output levels
A general view shows oil pumping jacks and drilling pads in California (AFP)

OPEC gathers in Vienna this week to decide on whether to trim the cartel's oil output faced with a global supply glut, sliding prices and weak demand growth.

Analysts widely expect the group - whose 12 member nations from the Middle East, Africa and Latin America pump out about one third of the world's oil - to leave its daily oil output target at 30 million barrels when the decision is announced on Friday. 

Oil prices fell in Asia on Wednesday, amid expectations it will maintain high output levels.

Nevertheless, it may agree to trim excess production in a bid to support prices and in turn producers' revenues.

According to a survey by Bloomberg, OPEC production in November rose to 32.12 million barrels per day.

"We will discuss... and then decide" on output, Saudi Arabia's oil minister Ali al-Naimi told reporters upon arriving on Tuesday in the Austrian capital, home to OPEC's headquarters.

At its last regular meeting in June, OPEC defied calls to cut output despite the low oil price, extending what is now a year-long strategy of attempting to preserve market share and fend off competition from oil extracted from North American shale. 

A world leader in crude oil production along with non-OPEC countries Russia and the United States, Saudi Arabia holds significant influence over the cartel's other 11 members.

"Saudi Arabia and its close Gulf allies Kuwait, Qatar and the United Arab Emirates account for more than half of OPEC's output of 31.5 million barrels per day, and others in OPEC cannot force them to cut output," IHS Energy said in a report. "Without the Gulf group, there can be no effective OPEC agreement."

But the policy of maintaining high output has contributed to prices slumping from above $100 a barrel in mid-2014 to between $40-$45 currently.

This has caused much friction within OPEC, with poorer members such as Venezuela suffering badly from a collapse in income.

"The pressure is growing on Saudi Arabia to cut production after it convinced the cartel to keep oil output high in order to maintain market share and presumably squeeze shale and other weaker producers out of the market," noted Fawad Razaqzada, oil market analyst at Gain Capital trading group.

"That strategy has so far failed to work effectively with rivals proving to be surprisingly resilient and shale output has fallen only slightly. Meanwhile oil prices have dropped far more, and remained depressed longer, than what the Saudis, and indeed many other oil producers, had envisaged," he added.

Weak demand

The price situation could meanwhile worsen next year, when growth in global demand for crude is set to slow as the allure of cheap oil fades, the International Energy Agency said last month.

Demand growth is being impacted also by slowing economic growth in China, the world's biggest consumer of energy.

Further downward pressure on oil prices is expected to come from OPEC member Iran ramping up exports as sanctions are lifted as part of July's nuclear deal with major powers.

In addition, the expected rise in US interest rates later this month may boost the dollar and make oil priced in the US currency more expensive for holders of rival units, further denting demand.

Ministers head to Vienna during the week-long Paris climate summit - a springboard for billion-dollar initiatives designed to leverage the huge investments for encouraging clean technology and helping poor countries go green.

Rebecca O'Keeffe, head of investment at stockbroker Interactive Investor, said that while "climate change may yet deliver long-term opportunities for investors... with coal and oil prices so low, the short-term incentive for alternative energy sources has diminished".

OPEC will in Vienna also approve Indonesia's return to the organisation following a six-year absence that had been triggered by southeast Asia's largest economy becoming a net importer of oil.

Its return is seen as a way for the resource-rich country to access cheaper oil supplies as local demand soars while domestic production falls.

Middle East Eye delivers independent and unrivalled coverage and analysis of the Middle East, North Africa and beyond. To learn more about republishing this content and the associated fees, please fill out this form. More about MEE can be found here.