Will OPEC Cut Production In View Declining Oil Prices?

Oil continued to decline on Monday morning. In the Asian session crude oil dipped to trade at 89.65 down 10 cents while Brent oil gave up 17 cents to trade at 93.03 with the spread narrowing $3.38. Brent lost nearly 5 percent last week, its steepest decline since April 2013. The oil finished its fourth week in five lower after the dollar touched a four-year high on Friday.  The US dollar rally along with low demand and high production weighed heavily on Brent oil prices. My feeling is the fall in Brent has gone far enough – $90 is the breakeven point for Saudi Arabia to maintain current levels of public spending.

The greenback hovered near a four-year peak against a basket of currencies after a strong U.S. jobs report on Friday bolstered expectations that the Federal Reserve would raise interest rates by mid-2015 or earlier. The US dollar is trading at 86.75 in the early session. U.S. nonfarm payrolls rose 248,000 last month and the jobless rate fell to 5.9 percent, the lowest since July 2008. 

A cut in output by the Organization of the Petroleum Exporting Countries (OPEC) could support oil prices, but the group is not due to meet until Nov. 27 and there have been no signals that it will take action before then. OPEC member Saudi Arabia, the world’s top crude exporter, will maintain steady supplies to at least two Asian buyers in November, industry sources said.  WTI sank below $90 for the first time since April 2013 on Oct. 2 after Saudi Arabia, the world’s largest oil exporter, cut its prices to Asia last month.

While output continues to grow in the United States due to oil shale extraction, exports are on the rise in Russia, Libya and Kurdistan. Also, Saudi Arabia cut prices for the fourth straight month last week to defend its market share, suggesting it is unlikely to cut production any time soon.  Both Brent and New York contracts have shed about 15 per cent in the past three months.  OPEC, which supplies about 40 percent of the world’s oil, pumped 30.935 million barrels a day in September, the most since August last year, according to a News survey of producers and analysts

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“Oil prices are likely to keep falling for the rest of the year as global supply is outstripping demand,” said Tony Noonan, oil risk manager at Mitsubishi Corp. in Tokyo. “Supply of US shale gas alone can cover global demand this year, and unless OPEC countries reduce their production, or unless a fresh geopolitical concern occurs, the best estimate now is a bearish market,” he added.

Next month’s OPEC meeting will take place against a background of dissension between two power blocs in an organization that controls the lifeblood of the global economy. A private group of the world’s most powerful oil ministers will soon gather in Vienna to make one of the most important decisions that could affect the still fragile world economy: whether to cut production of crude to defend prices at $100 or keep up production as winter looms among the biggest energy-consuming nations.