OPEC divided over oil output cuts

OPEC is expected to stick with its strategy of not cutting oil production when its ministers meet in Vienna on Friday, with the cartel split over who should take responsibility for reducing supply to support prices.

Delegates and OPEC ministers say it is highly likely they will either rollover its 30m-barrel-a-day output target or increase it to accommodate the re-admittance of Indonesia to the group, even though prices have slumped close to six-year lows.

The division within the producers’ group was evident at the pre-meeting press conference.

Venezuela’s oil minister said it would table a proposal for the group to reduce output by 1.5m barrels a day to try to bolster the price.

But Saudi Arabia and its Gulf allies are widely expected to resist calls to reduce supplies as other large members such as Iran — and non-OPEC producers like Russia — have declined to co-ordinate action.

“We are looking for stability in the market, we are really worried,” Venezuela minister Eulogio Del Pino said. “The price was $60 at the last meeting [in June], it is $40 now.”

Brent crude oil, the international benchmark, has fallen 40 per cent over the past year, since Saudi Arabia led the group in a decision to keep production high to try to win back customers from more costly producers.

OPEC has been producing well above its existing production ceiling.

The price crash has slowed the growth of US shale, oil from Canada’s tar sands and other high-cost production, but has also decimated the budgets of OPEC’s members, especially the most economically fragile. The market remains oversupplied by at least 1m barrels a day.

“The reasons for the strategic decision to not cut production last November are still in place,” said Jamie Webster, oil analyst at IHS Energy, of the Saudi-led decision to try and maintain or win back market share. “Despite OPEC nations suffering a lot more pain than any of them expected, everything still holds.”

Carlos Pareja Yannuzzelli, Ecuador’s oil minister, said at least six countries supported a cut in output. Angola, Venezuela and Iraq all said prices need to rise to at least $70 a barrel to be “fair” for both producers and consumers.

But Iran’s oil minister, Bijan Namdar Zanganeh, said he did not expect OPEC to agree on a change of policy at this meeting, even though he estimates the market is oversupplied by as much as 2m barrels a day.

Limiting Iran’s output was “not a matter of negotiation”, Zanganeh said, as Tehran prepares to raise production and exports once sanctions linked to its nuclear programme are lifted.

Earlier in the week, Saudi Arabia raised the possibility of reducing output but attached strict conditions, including Iran and Iraq joining cuts.

Co-operation from large producers outside the cartel, such as Russia, would also be a requirement, though Moscow has rejected calls to join output cuts and has raised production to record levels.