Let market stabilise oil price, not low-cost producers, says Minister of Energy

Producers of low-cost oil such as Opec members should not play the role of swing producers and instead allow the market to stabilise itself, the UAE’s Minister of Energy said yesterday.

“Low oil producers should be at the base,” said Suhail Al Mazrouei. “It was a mistake in the past that they were a swing producer. The fact we have more competition in the market means we need to do something to correct that behaviour. That correction was the decision that the members of Opec took, which is we will be base producers because that is to the benefit of the customers and that’s to the benefit of the sustainability of the market.”

Opec, which pumps about 40 per cent of the world’s oil, made a historic decision in November last year to not cut its output to protect its market share rather than prop up prices.

This shift in strategy led to an oil supply glut because US shale oil producers continued to pump at will, driving down oil prices to shed more than half their value since mid-2014.

Opec next meets on December 4 in Vienna, where it will discuss its output ceiling, which it kept unchanged at 30 million barrels per day at its last meeting in June.

Mr Al Mazrouei has argued that low oil producers such as the 12-member Opec organisation should not subsidise high-cost producers. Tight and shale oil costs more to produce than conventional oil, which is the majority of crude that Opec pumps.

“We are going to let the [oil] market stabilise itself,” said Mr Al Mazrouei. “When that happens will depend on how much we work together as one team, and not depend on one player to fix the market.”

Opec has argued it will not trim its production as long as non-Opec producers keep their taps open, distorting the oil market, which remains weak, in part because of lower demand from Europe and Asia and a strong US dollar.

“The stability of the market is going to happen, but I think we will have less fluctuation in the future if that is achieved because those more expensive producers are needed as well,” said Mr Al Mazrouei.

Opec’s policy of protecting its market share has squeezed out shale oil companies in the US, which have reduced their production this year.

US shale oil output is forecast to drop for the eighth month in a row to 4.95 million bpd next month, 118,000 bpd less than this month, according to the US Energy Information Administration.

Growth in non-Opec oil supply could stop by 2020 if spending cuts continued to hit the industry, warned the International Energy Agency, the Paris-based energy adviser to industrialised nations.

Non-Opec oil supply is forecast to fall by about 130,000 bpd year-on-year in 2016 for the first time since 2007, as the industry slashes $200 billion in capex this year and next, leading to lower production, according to Opec estimates.

The demand for Opec crude next year is forecast at 30.8 million bpd, 1.2 million bpd more than this year’s demand.

Opec produced 31.38 million bpd in October, 256,000 bpd less than in September, but still above its official ceiling. The decrease is mostly because of lower production in Iraq, Saudi Arabia and Kuwait, the organisation said in its November monthly report, citing secondary sources.​


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