OPEC delegates musing over potential oil cut

A subtle shift may be taking place within OPEC as it heads into its most important meeting in years, according to delegates with the producer group, as the discussion over whether it needs to cut output to defend oil revenues quietly intensifies.

Abudulla al-Badri, OPEC’s Secretary General urged markets not to panic over the drop in prices to a 4-year low near $81 a barrel, while Kuwait’s oil minister said OPEC was unlikely to cut output when it meets on November 27 in Vienna.

But privately, more delegates within the Organization of the Petroleum Exporting Countries are starting to talk of the need for the group to take some action, although they warn that reaching an agreement will not be easy.

That could involve reducing output by around 500,000 barrels per day (bpd), the amount OPEC is currently producing above its output target of 30 million bpd, according to its own figures. That could serve as a face-saving compromise between those willing and opposing a formal cut.

International oil prices have fallen by around 30 percent since June, as fast-rising U.S. shale production has contributed to growing supplies. But so far only a Libya, Venezuela and Ecuador have called for OPEC to cut output.

Kuwait and Iran have said a reduction is unlikely, while Saudi Arabia, the most influential member, has yet to comment publicly. Oil traders and analysts are split over whether the group will act to shore up prices.

While many members of the group such as Ecuador, Iran, and Venezuela will face large budget shortfalls if prices stay at or below current levels, some believe the group is largely powerless in the face of rising US production, which has been increasing at around 1 million bpd for the last three years.

With just over two weeks until the meeting in Vienna, powerful Saudi Arabia is still holding its cards close.

While Saudi delegates have quietly indicated they may be comfortable with a period of lower prices to try slow the rapid rise in US oil output, some believe it is a tactic to put pressure on other OPEC countries to share in any production cut either now or in the future.

Ali al-Naimi, Saudi oil minister has not spoken publicly since September, leading some delegates from other countries to say Saudi has added to confusion in the oil market and inside OPEC.

Another possibility is that the group will be overtaken by events. OPEC member Libya, which saw production recover from around 100,000 bpd in June to near 900,000 bpd in September, is again gripped by political strife.

Its oil output is already slipping, down to around 500,000 bpd, potentially reducing the need for the group to agree a formal or informal output cut for now, though there has been little reaction in prices so far.

Ali al-Omair, Kuwait’s oil minister said that in any case, the group must present a more united front to the oil market after recent disagreements.