Saudi Arabia, the most powerful member of the Organisation of Petroleum Exporting Countries, said ahead of Friday’s meeting of Opec that global oil stocks needed to increase before Opec would have to cut production, a stance that puts it at odds with most of its fellow oil cartel members.
Ali Naimi, Saudi Arabia's oil minister, said there was no need to rein in production as peak winter demand in the northern hemisphere had not started. “The winter is coming, our [oil price] band is still $22-$28 [well below current prices], so why should we do anything?” Mr Naimi said.
Mr Naimi's comments, which pushed oil prices to four-month lows, were followed by a weaker than expected US crude inventory report. Although the report showed US imports were at their second highest level, this was overshadowed by a weaker than expected inventory rise for petroleum and distillates, which includes diesel and heating oil.
The report reversed Tuesday's fall in oil prices and sent US benchmark West Texas Intermediate crude futures up 74 cents to $42.20 a barrel and off its lows for the day of $40.45. US crude was up 37 cents at $42.31 a barrel on Thursday.
WTI futures have fallen by about 25 per cent since its record nominal peak of $55.67 in late October, with most of the fall taking place in the run up to the Opec meeting. “The Opec basket [of prices] is still $33, the winter has not even started in the [US] north-east,” Mr Naimi said.
However, the Saudi oil minister may soften his bargaining position in the coming days. He changed the position he held in the run up to the last Opec meeting to reach an agreement with fellow members.
Opec ministers from Iran, Venezuela, Qatar, Libya and United Arab Emirates have all said in the past week that they want to focus on paring down excess supply above Opec's official ceiling at the meeting.
Sheikh Ahmad al-Fahd al-Sabah, Kuwait’s oil minister, said on Thursday: “I think we have to cut off all our overproduction,” adding that he thought the price falls of the past six weeks “were a surprise for everybody”.
The 10 Opec members with quotas produced about 28m barrels a day last month, about 1m b/d above the self-imposed limit.
Recent price falls have renewed the prospect of a possible cut of Opec quota limits. Most of the burden of any Opec output cut would fall on Saudi Arabia as it has been producing about 9.5m b/d since August, 890,000 b/d above its quota limit.
“We need to do something, we have to comply [with the quota] first,” Fathi Omar Bin Shatwan, the Libyan energy minister, said. In spite of the weaker than expected US inventory report, which is seen as a proxy for global oil demand, some Opec ministers believe that if production is not cut back global oil inventories would rise during the first quarter of next year after demand peaks in January.
Some Opec officials insisted on Wednesday that weak petroleum product inventories were not an issue for Opec, as they reflect bottlenecks in the global refinery system, where spare capacity is at its lowest in more than two decades.