KUWAIT CITY: Gulf OPEC members will reject pressure to shoulder the cost of cutting oil production alone despite warnings that prices risk sliding further, officials and analysts say.
Saudi Arabia, Kuwait, UAE and Qatar, which pump more than half of OPEC’s 32 million barrels of daily output, want a solid commitment from all other producers, especially non-OPEC member Russia, to agree to production cuts across the board.
“Gulf states will not undertake a unilateral output cut. They need strong cooperation from other producers, mainly Russia, to cut,” Kuwaiti oil analyst Kamel Al-Harami said.
The Organization of the Petroleum Exporting Countries is to hold a crucial meeting on December 4 to study prices, which have fallen around 60 percent since mid-2014.
An informal meeting to be attended by some non-OPEC producers will be held the day before.
“Gulf producers are not inclined to change their policy of defending market share rather than price despite heavy income losses,” Saudi economist Abdulwahab Abu-Dahesh said.
“They realize they will be asked to bear the bulk of any cuts,” as none of the other OPEC members are financially in a position to do so and non-OPEC Russia has so far said it will not, Abu-Dahesh said.
A senior Gulf oil official said nothing has changed to alter Gulf states’ oil policy.
“No indicators or changes have happened to convince Gulf states to change their policy and cut output,” said the official said.
But another Gulf official hinted at some flexibility in case of cooperation.
“It’s too early to say if OPEC would maintain its production policy,” said the official.
Saudi Arabia said recently it was ready to cooperate with other producers to stabilize the oil market and support prices.
The OPEC meeting comes at a time of a massive production glut, with oversupply continuing and inventories at almost record levels of more than 3.0 billion barrels, triple the normal rate.
OPEC member Venezuela and some international economic reports have warned that the oil price could slide to the range of $20-$30 a barrel from around $42 now if output is not trimmed.
Abu-Dahesh said Gulf states are betting on developments indicating a balanced oil market next year after OPEC’s strategy knocked out some high-cost production, such as some US shale oil.
OPEC Secretary General Abdullah El-Badri said in October he was confident the oil market will pick up in 2016 due to a growth in demand and a drop in non-OPEC output.
He said the glut was caused by a six million bpd increase from non-OPEC members over the past five years and that this has started to contract.
Petroleum and Mineral Resources Minister Ali Al-Naimi told an energy conference in Bahrain on November 19 that, despite oversupply, the world still needs 5.0 million bpd of new output, four million of that due to natural decline.
Bassam Fattouh, director of the Oxford Institute for Energy Studies, told the same conference the market rebalancing process has started but the effect on prices will be slow.
The International Energy Agency said this month that growth in demand for crude is set to slow next year as the allure of cheap oil fades.
The IEA expects demand to grow by 1.2 million bpd in 2016, down from 1.8 million bpd this year.
Harami believes oil prices will remain low for at least the next two years until the global economy picks up.
By then, falls in high-cost oil production will make way for OPEC crude, Harami said.
Massive cuts in oil investments will also help slow production, he said.
Saudi Arabia said this month that more than $200 billion worth of energy projects worldwide had been canceled this year and more cancelations were expected in 2016.
Despite economic woes and major revenue losses due to low oil prices, the Gulf states have a huge fiscal cushion to rely on.
“Gulf states can bear the downturn for another three years enough for their oil policy to achieve targets,” Abu-Dahesh said.