Abu Dhabi National Oil Company (ADNOC) says it will pump less oil and ship less crude oil to world markets next month, making the UAE the first Opec member to announce deeper supply cuts after the organisation agreed to a record output cut last week. In a faxed statement yesterday, the state company said it would cut oil production by 200,000 barrels per day (bpd) to comply with Opec decisions "aimed at sustaining market stability".
"ADNOC is committed to providing its customers with adequate supplies according to present quotas, and supports market stability," a senior company official said. In a separate statement, the company said cargoes of its flagship Murban crude oil shipped from the Jabel Dhana terminal would be loaded at 5 per cent below full contract volumes. The new cuts are in addition to a 15 per cent reduction imposed last month. The company said it would also limit all shipments of its Upper Zakum crude to 5 per cent below normal volumes next month.
Opec's largest oil exporter, Saudi Arabia, told customers early this month that it would reduce oil shipments next month, and traders have been watching closely for signs that other members would comply with the 2.2 million bpd supply cut agreed on Dec 17 at a meeting on Oran, Algeria. Oil prices have continued to weaken since then, due to scepticism over the willingness and ability of Opec members to throttle back oil flows fast enough to compensate for plunging demand in the world's biggest economies.
In the last US trading session before the Christmas break, oil fell more than 9 per cent, sinking below US$36 a barrel, as petrol stockpiles in the world's biggest oil-consuming country continued to grow. Crude oil for February delivery fell by $3.63 to $35.35 a barrel on Christmas Eve in thin trading on the New York Mercantile Exchange (Nymex), extending a three-day losing streak, after US government data showed oil inventories rising for the third consecutive week as demand continued to weaken.
Since peaking at $147.27 in July, the price of a barrel of crude has fallen 76 per cent. "There isn't a lot of upside for oil prices," said Peter Luxton, an energy analyst at Informa Global Markets, an international supplier of real-time news. "Stocks are rising and refineries are not necessarily buying oil." Oil stocks at Cushing, Oklahoma, the main US oil storage facility, rose by 1.2 million barrels last week to a record 28.5 million barrels. Meanwhile, US petrol stocks climbed by 3.3 million barrels as refiners increased processing runs to reduce brimming crude inventories, but failed to find more buyers for their products.
US crude touched a four-year low of $33.44 last week, as the expiration of the Nymex January futures contract approached while the available storage for crude purchased for prompt delivery shrank to its lowest level in years. The February contract, which at the time was trading at about $42 a barrel, has subsequently also lost ground. Oil market traders have shrugged off a total of 4.2 million bpd of Opec supply cuts, representing about 5 per cent of global oil supply, announced since September.
The parade of gloomy economic news continued this week, fuelling expectations that the demand slump will deepen. Already, most analysts are expecting global demand for oil to contract both this year and next, following successive annual increases since 1983. Some economists project a 6 per cent fourth-quarter contraction in US GDP compared with the same period last year, which would be the biggest quarterly drop since 1982.
In Japan, the latest government figures showed oil imports last month falling more than 17 per cent from a year earlier, underscoring the steep decline in oil demand in the world's second-largest economy. Most analysts and traders saw little reason for oil prices to rally in the near term. "More than adequate levels of inventories will push prices down," said Tetsu Emori, a commodity fund manager at Astmax in Tokyo.
"Until the price is low enough to break through the cloud of economic gloom and doom, oil is going to be under some pressure," said Mike Fitzpatrick, the vice president of MF Global in New York. Abdalla el Badri, the Opec secretary general, said on Wednesday he did not expect oil prices to reach the group's unofficial target of $75 a barrel until 2010. That is especially bad news for some oil-exporting countries that need crude prices near or above that level next year to balance their budgets.
This week, the world's second-biggest oil exporter, Russia, forecast its first deficit in a decade, joining the top exporter, Saudi Arabia, in predicting its budget would slip into the red next year. Russia's government had earlier planned a balanced budget for next year, assuming an average crude price of $70, Bloomberg reported. With Opec producers also under pressure, the Opec president Chakib Khelil has said the group may call another emergency meeting before its scheduled March gathering if oil prices continue to slide.
* with agencies @Email:tcarlisle@thenational.ae