Opec leaders unperturbed as oil prices slide

IEA report provides more evidence of weakness in the market.

Opec’s leaders have brushed off sliding oil prices as yet another report underlined a weak international oil market.

The Paris-based International Energy Agency, the rich countries’ main energy think tank, added to the recent negative mood when its regular monthly oil market report revised forecast world oil demand down for both 2014 and 2015, saying a “pronounced slowdown in demand growth in [the second quarter of 2014] and a weaker outlook for Europe and China underpin the downward revisions”.

With supplies of oil generally ample and set to grow further through next year, and no real sign yet of any desire to curb supply by Opec’s key swing producers – Saudi Arabia, the UAE, and Kuwait – the IEA expects that the “call on Opec” supplies will be significantly less than previously forecast. It estimates demand for Opec crude will be 200,000 barrels per day less this year and 300,000 bpd less next year.

While the exact figures on supply and demand are only educated guesses, the more accurate reflection of what is happening in the market is inventories in the developed countries. The IEA report reckoned that increases in the OECD meant that world inventories climbed nearly 20 million barrels in August, nearly double their usual seasonal build, as refineries increased their rate of production without a corresponding increase in sales.

Meanwhile, at a meeting of the GCC in Kuwait, Saudi Arabia’s long-serving oil minister, Ali Al Naimi, said yesterday he was not worried about a fall in benchmark world oil prices below the US$100 a barrel mark.

“Prices always fluctuate and this is normal,” said Mr Al Naimi. And asked about the need for an emergency meeting of Opec oil ministers ahead of their next regularly scheduled meeting in late November, he said: “It is too early now ... We will discuss the prices and the production level in our next group meeting on November 27”, according to newswire reports.

Other unnamed delegates were quoted at the Kuwait meeting as making similarly calming remarks, also echoed by Iran’s oil minister, Bijan Namdar Zangeneh, when asked recently about falling oil prices.

In late afternoon London trading, the price of the European benchmark Brent crude futures was down US$1.24 at $96.80. In Dubai on the DME, the Oman crude futures contract hit a 26-month lowyesterday at $95.98, before closing at $96.17. Brent futures have now fallen by about 16 per cent from their summer peak above $115, when the market was worried that conflict in Libya and Syria/Iraq might disrupt supplies. No serious disruption has materialised, indeed the IEA said Libyan supplies rose last month.

The Opec Secretariat’s monthly oil market report on Wednesday had a similar message to the IEA’s.

Some news reports pointed out that the Opec and IEA reports showed Saudi Arabia had cut oil exports in August by 400,000 bpd, concluding that it had begun to react to weaker oil prices.

However, an Opec official familiar with the secretariat’s methods pointed out that its monthlies report two figures for Opec members’ oil exports: one that is officially reported to Opec by the member country and one from “secondary sources”, which is comprised of news organisations and market analysts. The secondary sources figure showed only a marginal 50,000 bpd cut in oil exports by Saudi Arabia in August, and oil traders tend to give more credence to those numbers.

Since Opec effectively abandoned its old quota system in 2011, leaving the Gulf swing producers to regulate the market, oil prices have mostly stayed in a range well within $90 and $120 a barrel.

Follow The National's Business section on Twitter