Oil prices will continue to fall unless Opec sends a strong signal at next week's meeting by cutting output, Barclay's Capital said in a report. The price of crude has been on a sustained slide since hitting a record above US$147 per barrel in July, and stood at $109.16 a barrel yesterday.
"We suspect the prices will continue to test the downside until the key oil producers provide more of an indication as to what will drive their policy, in terms of stating what is a fair and defensible price," the investment bank said. Opec has no official policy or direct control over oil prices, which are set by traders on futures markets in London and New York. The 13-member group sets limits on production with a view to balancing supply and demand.
Barclays' oil forecasters, who made a name for correctly predicting the summer's run-up in prices, said two million extra barrels of crude on the market caused by increased Saudi production and falling US demand had sent prices coasting downwards. Although demand in Asia and the Middle East remains strong, the report argued that Saudi Arabia and the US continue to set the tone of the market. "Sentiment is very negative indeed, and prices are likely to weaken until the Prince in this particular version of Hamlet gets some lines," Barclays analysts wrote.
In a separate daily briefing, the investment bank predicted Opec would take action to restore the price by reducing output. Opec rarely complies strictly to its agreed quotas, and currently pumps 800,000 barrels per day (bpd) more than its ceiling of 29.67 million bpd for 12 members bound by limits. "Opec looks more likely to cut the actual level of output in coming months," Barclays said. But a formal agreement to cut production next week looks unlikely as momentum appears to be shifting away from that option.
A Bloomberg survey yesterday found that 29 of 32 energy analysts believe the organisation will not reduce its formal ceiling at its ministerial meeting in Vienna. "They want to prevent a build-up of crude stocks, which rules out an increase, but don't want to send oil prices skyrocketing by announcing a cut," Mike Wittner, head of oil research at Société Générale in London, told Bloomberg. "Opec won't take any formal action."
Officials from Ecuador, Nigeria and Libya have all said they did not expect an output cut. "The Venezuelan minister has made a proposal for a reduction in world oil production, but we don't share that opinion... we will propose to maintain [output levels] to stabilise prices," Galo Chiriboga, the Ecuadorean oil minister, said yesterday. Venezuela and Iran, historically known as the price "hawks" of the organisation, have criticised output increases throughout the summer.
In a report on Wednesday, the American research firm PFC Energy also said it expected Opec to move to prop up prices. "The focus of debate among Opec ministers gathering next week in Vienna will not be whether there is a need to cut crude oil production, but rather when," said David Kirsch, an analyst. Also yesterday, the energy minister of Brazil said his country was considering an invitation of Opec membership after discovering a huge cache of oil reserves offshore earlier this year.
Edison Lobao said he saw no obstacles to Brazil becoming a member of the organisation even though it was not yet a major exporter. He said Brazil received a formal invitation of membership from Iran two weeks ago. @email:cstanton@thenational.ae