Opec fresh output cut to halt slide

SWELLING fuel stocks and a more than $90 drop in the oil price has driven Opec to call another round of urgent talks that could agree a deep supply cut to try to shore up the market. Since early September, the Organisation of the Petroleum Exporting Countries has already agreed to reduce supply by a total of two million barrels per day (bpd). It could announce a further cut of 1.5 million bpd at talks in Cairo at the end of the month, an Opec delegate said on Friday. “The organisation needs to cut more rather than less — probably in the range of 1.5 million,” the delegate told a news agency, adding “Demand is going down every day along with the price and we don’t want a big stock-build.” A reduction of that size would be deeper than the one million bpd many analysts have said is necessary, but the organisation has been monitoring an increase in the number of forward days of stock cover, which is a key indicator for the group. Market sources have said Opec has so far removed more than half of the total cuts of 2 million bpd announced at a planned meeting in September and emergency talks in October, but that has failed to halt the price slide. “The price has put a gun to their head. That’s why they’re meeting,” said Mike Wittner of Societe Generale. In September, oil was still around $100, compared with above $60 during the October meeting and this week’s low of less than $55 a barrel — more than 60% below the alltime high of $147.27 struck in July. On Friday, oil prices fell more than $2 on persistent demand worries amid dismal retail sales data and a stronger dollar. US light crude for December delivery was down $1.84 or 3.2% at $56.40 a barrel by 21:30 pm IST, after trading from $56.16 to $59.96. London Brent crude for January — the new front month — lost $1.03 to $55.21 a barrel. The organisation has avoided naming a target price, but some in the group have said privately around $70 a barrel is a level that allows both producer and consumer needs to be met. Instead of focusing on Opec’s determination to reduce supplies, the market’s attention has fixed on the impact of the worst economic slowdown since World War-II on fuel demand and the resulting rise in fuel inventories. At the same time, Opec has watched the number days of forward cover rise. In its monthly market report on Thursday, the International Energy Agency, which represents consumer countries, said oil stocks in developed countries equated to 55 days of forward cover at the end of September and could rise to 56, according to preliminary October data. Figures from the US Energy Information Administration also put September and October forward cover at 56 days. “If winter demand does not erode inventory back down to 53-54 days, there will be excess supply in late January or February of 1.6 million bpd,” said Sadad al-Husseini, a former top executive at Saudi Arabian oil firm Saudi Aramco. The organisation will not release its monthly market assessment until Monday, but its data is widely expected to show a downward revision in demand growth. Following Opec’s last emergency talks in October, supply cuts were very swiftly begun. Many Opec countries use an allocation system, which sets supply levels weeks in advance, but they still have the option of using operational tolerance to add or subtract 10% of total volume. Calling a meeting two weeks earlier than one already set for December 17 in Algeria need not make a difference to how quickly supplies are tightened ahead of early next year when a seasonal drop in demand is expected. But frequent meetings can send a signal to the market that OPEC is determined to act as it did after the Asian economic crisis drove prices below $10 a barrel in 1998.