OPEC will likely cut its oil production next year as prices risk falling in reaction to higher output from top crude consumer the United States and amid a slowing of energy demand growth, analysts say.
The Organization of Petroleum Exporting Countries (OPEC) decided on Wednesday to hold its oil output ceiling at 30 million barrels per day, which stands about one mbd below the cartel’s actual production.
At a ministerial meeting in Vienna -- where OPEC is based -- its 12 member countries also chose to re-appoint Secretary-General Abdullah El-Badri to head the group for another year after failing to agree on a new leader.
“When you look at the price now, there is not concern at this time,” El-Badri told reporters at a post-meeting press conference in the Austrian capital on Thursday.
“I think the current price, at $110 (a barrel for benchmark Brent crude), is acceptable for both producers and consumers.”
OPEC said on Wednesday that “the biggest challenge facing global oil markets in 2013 is uncertainty surrounding the global economy, with the fragility of the eurozone remaining a major concern.”
It added in a statement following its meeting: “World oil demand is forecast to increase slightly during... 2013, (but) this is likely to be more than offset by the projected increase in non-OPEC supply” -- such as from the U.S..
OPEC’s “overall interest is certainty in demand, and nobody can really tell whether this certainty in demand will be fully there,” independent energy market analyst Karin Kneissl told AFP after Wednesday’s meeting.
OPEC, which includes the world’s biggest oil exporter Saudi Arabia among its dozen members, forecast that demand for its crude oil next year would contract to 29.7 mbd -- or about 1.5 mbpd down on current output.
The International Energy Agency, which represents consumers, said on Wednesday that non-OPEC production was expected to rise to 54.2 mbd next year following “the highest growth rate since 2010.”
Demand for OPEC oil expected to fall
OPEC members agree that the oil market “is currently well-supplied and demand for the group’s crude will fall next year,” said Julian Jessop, analyst at the Capital Economics research group.
“The US, Canada and Mexico combined now produce more oil than the total of... (OPEC’s) Saudi Arabia, Iraq and Iran,” he added.
A weakening of demand for OPEC oil risks weighing on high crude prices, despite a background of Middle East unrest, notably over Iran’s disputed nuclear program.
Oil prices fell in trading on Thursday after OPEC’s warning of an over-supply amid uncertainty surrounding the outlook for the global economy, analysts said.
Brent North Sea crude for January delivery shed 24 cents to $109.26 a barrel.
OPEC on Wednesday said its members “would, if necessary, take steps to ensure market balance and reasonable price levels for producers and consumers.”
While analysts said OPEC would cut output in the coming months, its members would be wary of stripping back too far for fear of sending prices too high, hurting economic recovery.
“Most member states in the exporting group will be happy with the current market balance and price levels, while fearing that falling production could see a further price rise and hurt already struggling demand growth into 2013,” said Andrey Kryuchenkov, an analyst at VTB Capital financial group.
Long-term meanwhile, a spike in shale oil and gas production risks weighing on prices of conventional crude, according to industry experts.
The IEA recently forecast that the U.S. would become the world’s biggest oil producer by 2017 thanks to an explosion in hard-to-reach energy trapped in shale, or sedimentary rock.
“According to the numbers we have seen, we think there will be competition” from U.S. shale, UAE Energy Minister Mohammad bin Dhaen al-Hamli said in Vienna this week.
“We will do everything possible to protect our (OPEC) interests,” he added.