OPEC basket falls below $100/b for first time since July 2012

By Margaret McQuaile in London

April 16, 2013 - OPEC's crude basket has fallen below $100/barrel for the first time in nine months, dropping to $98.56/barrel on April 15 from $100.63/b on April 12. The 12-crude basket last stood below $100/b on July 16, 2012.

North Sea Brent crude futures on the IntercontinentalExchange opened at $99.43/b April 16, marking the first time the front-month contract had traded under $100/b since July 12 last year.

Analysts at VTB Capital said Saudi Arabia had cut output late last year to prevent prices slipping and that the kingdom would be key to any OPEC defence of $100/b now.

The oil cartel is scheduled to meet in Vienna on May 31.

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"We believe pre-emptive production cuts from Saudi Arabia toward the end of last year deferred the tipping point, which now looks like it might have arrived," they said in a note.

"The key question, in our view, is whether Saudi Arabia will be willing to do enough on its own or will it require participation from other OPEC members."

They added that "the former option" would see prices stabilize and recover more rapidly.

Otherwise, they said, recent history suggested prices had the potential to drop a further $10/b before launching a sustainable rise.

But analysts at Citi said in a report on April 12 that Saudi Arabia would need to boost crude production this summer to meet domestic power generation requirements and supply the Jubail refinery within the kingdom and the Motiva refining joint venture with Shell in the United States.

"[The] Saudis will need to ramp up crude production in order to meet their domestic natural gas requirements in the summer, as well as to supply Jubail when it comes online and when they start to supply Motiva on the US Gulf Coast," Citi said.

"Coupled with the increased need for revenue given the social spending binge in the aftermath of the Arab Spring, the ability of the Kingdom to pull back on production to defend prices does look very constrained."

Citi said it expected Brent to average $104/b this year but to drop to $93/b in 2014, $88/b in 2015 and $85/b in 2016 and 2017.

"Fundamentals remain weak and the risks remain weighted to the downside," it said.

Saudi Aramco said on April 15 that it had begun production from its offshore heavy oil field, Manifa, three months ahead of schedule.

Manifa is expected to be pumping 500,000 b/d by July and to reach its full design capacity of 900,000 b/d by the end of 2014.

But Aramco said the field would not have any impact on total Saudi production capacity.

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