No need for panic over oil price plunge, OPEC chief says
October 31, 2014 -- By Margaret McQuaile in London
OPEC secretary general Abdalla el-Badri called this week for calm over plunging oil prices, saying fundamentals of supply and demand did not justify the extent of the slide and that OPEC crude output was unlikely to be significantly different in 2015 from that of the current year.
Badri, briefing journalists in London, said he was not predicting the outcome of the oil producer group's November 27 meeting and that it would be up to ministers to decide at that time whether action might be needed to respond to the $30/barrel fall in oil prices over the past four months
Nevertheless, his remarks appeared to suggest that OPEC may not be in a hurry to rein in its own barrels to support oil prices at levels conducive to the production of the US tight oil that will absorb all the growth in world oil demand this year and next.
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Badri said that if prices remained around $85/b, a lot of oil would be forced out of the market, including 50% of US light tight oil production.
He insisted, however, that OPEC members were not engaged in a price war and that recent cuts in official prices to term lifters by some member countries were simply a response to what was happening in the market.
There is, he said, "no price war."
Badri was speaking on the sidelines of the annual Oil & Money conference in London, at which there was some discussion of breakeven prices for shale oil.
ConocoPhillips' chief economist, Marianne Kah, said very little US tight oil production would be lost at a WTI crude price of around $80/b and that prices would have to drop to $50/b to halt production growth.
In fact, she said, 80% of US tight oil projects have a breakeven price of between $40/b and $80/b WTI, Kah said.
Badri, however, said he stood by his view that a continuation of prices at current levels would reduce US tight oil production by half.
"No one can tell me the breakeven price [for US shale oil] is from $40 to $80/b," he said.
Noticeably absent from the general debate over the direction of oil prices and the state of the market has been Saudi Arabia, whose last public pronouncement on the issue came on September 29 in the form of a speech to a Bahrain conference by Ibrahim al-Muhanna, adviser to oil minister Ali Naimi.
Oil prices, Muhanna said, were unlikely to fall below $90/b because of the high cost of producing shale oil and that any dip below this level "would be for a short time before going back to the level of around $100/b."
At the time, Brent crude was trading around $96-$97/b.
Saudi Arabia's near-term view, Muhanna said, was that world oil markets would remain stable in terms of prices, with a balance between supply and demand.
"What we have seen over the last five years will likely continue for another five years, and maybe beyond," he said.
Saudi oil minister Ali Naimi last commented publicly on oil prices on September 11, during the same week in which Brent moved below $100/b for the first time since June 2013.
He downplayed the sharp drop, saying oil prices "always go up and down" and that he didn't understand "the big fuss about it this time."
But in contrast with the seemingly sanguine stance taken by the oil-rich kingdom towards plunging prices are reports that Riyadh -- which told OPEC it had boosted production by around 100,000 b/d to 9.7 million b/d in September -- had actually cut supply to the market by 328,000 b/d to 9.36 million b/d.
What all these contrasting signals mean for OPEC's November 27 meeting is unclear.
OPEC pumped 30.47 million b/d in September according to OPEC's own secondary source-derived estimates, although production was below the ceiling for much of this year, in part because of outages in strife-torn Libya.
But OPEC expects demand for its crude to drop sharply from 30.15 million b/d in the current quarter to just 28.4 million b/d in the first first of next year.
Because the current ceiling does not include individual country quotas, OPEC has relied on informal output adjustments -- often by leading producer Saudi Arabia -- to manage the market.
This was not a particularly difficult task when oil prices were coursing above the $100/b level.
But several rounds of price cutting by Saudi Arabia and other countries have prompted speculation that the OPEC kingpin and neighboring Gulf producers have embarked on a fight for market share in Asia as traditional suppliers to the United States are displaced by rising US shale oil production.
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