OPEC Members’ Rift Deepens Amid Falling Oil PricesOPEC Members’ Rift Deepens as Oil Falls
Rival Producers Moving in Sharply Different DirectionsRival Producers Moving in Sharply Different Directions
A rift between OPEC members deepened over the weekend, as rival producers in the cartel moved in sharply different directions amid recently falling oil prices.
Venezuela, which has been one of the most outspoken proponents of a production cut by the Organization of the Petroleum Exporting Countries, called over the weekend for an emergency meeting of the group of some of the world’s biggest oil producers to respond to falling prices. But Kuwait said Sunday OPEC was unlikely to move to rein in output.
Saudi Arabia, meanwhile, appeared to deepen its recent move to defend its own market share at the expense of other members by aggressively courting customers in Europe. Over the weekend, traders said Saudi Arabia was now asking for stronger commitments from some of its buyers in Europe, a move that would lock in those customers, including any new ones it would gain with recent price reductions.
The moves and countermoves are the latest in a time of particular discord in the group. The organization was founded to leverage members’ collective output to help influence global prices. In recent periods of low prices, Saudi Arabiathe group’s biggest producer and de facto leaderhas managed to cobble together some level of consensus among members to throttle back on output to bolster prices.
But even modest cooperation between many members has broken down, and Saudi Arabia, in particular, has moved to act on its own. While it cut output earlier this summer, other members didn’t go along. Since then, it has dropped its prices, undercutting other members.
Each member has a different tolerance for lower prices. Kuwait, the United Arab Emirates and Saudi generally don’t need prices quite as high as other membersincluding Iran and Venezuelato keep their budgets in the black.
Late Friday, Venezuelan Foreign Minister Rafael Ramirez, who represents Caracas in the group, called for an urgent meeting to tackle falling prices. The group’s next, regular meeting is set for late next month.
But on Sunday, Kuwait’s oil minister said there has been no invitation for such a meeting, suggesting the group would need to stomach lower prices. Kuwait’s oil minister said there was a natural floor to how low prices could fallat about $76 to $77 per barrel—near what he said was the average production costs per barrel in Russia and the U.S.
“I don’t think there is a chance today that [OPEC] countries would reduce their production,” Ali al-Omair was quoted as saying by the official Kuwait News Agency, or KUNA. A cut in OPEC production “may not necessarily boost prices” because of high output by other producers, he said.
Last week, OPEC’s average basket of crude fell to its lowest level since December 2010, while the Brent international benchmark fell near a four-year low at one point before bouncing back to close Friday at $90.21 a barrel.
Amid the price pressure, Saudi Arabia, which can stomach lower prices than many of its OPEC colleagues, has cut its Asian prices. Traders now say Saudi Arabia is taking the unusual step of asking European buyers to commit to maximum shipments, after cutting European prices, too.
This month, state-owned Saudi Aramco stunned the rest of the OPEC by slashing its November prices to defend its market share in Asia’s growing market. At the same time, Saudi Arabia said it increased its output in September.
After cutting its November prices in Europe, Saudi Aramco is also asking refiners to commit to full, fixed deliveries in talks to renew contracts for next year, the traders say. They say the Saudi oil company had previously offered a formula allowing flexibility of more or less 10% of contracted volumes, the most commonly-used in the industry.
“They are threatening buyers” to discontinue sales if they don’t agree with the fixed deliveries, another trader said.