Opec oil ministers sounded the alarm and urged production cuts yesterday as oil prices remained at their lowest levels in months and threatened to slump further amid shrinking demand for crude in industrialised countries. "If the price level continues as it is, we are seriously thinking of cutting down our production and calling other member countries in Opec, and non-Opec producing countries, to cut their production to safeguard their incomes," Shokri Ghanem, Libya's top oil official, told Agence France-Presse yesterday.
West Texas Intermediate crude for November delivery jumped $3.30 to $91.11 (Dh334) yesterday. The upward correction followed a steep drop on Monday, when crude traded at levels not seen since February. Dubai crude, which is traded in smaller volumes on world exchanges and serves as a benchmark price for regional producers, closed at $77.85 a barrel yesterday, its lowest level since October last year.
Analysts agree that a key driver in the price fall has been a general perception that demand for oil is shrinking in line with declining economic fortunes. Since hitting a record high of $147 in July, oil prices have been in a sustained slide that was only exacerbated by the recent financial upheavals on Wall Street. A decision by Opec last month to effectively cut production by half-a-million barrels had little measurable effect on prices, and oil slumped again this week despite the US government's passage of a $700 billion US bailout package.
Oil ministers yesterday said they were watching demand figures closely. Muhammed Ali Khatibi, Iran's Opec representative, said the group would probably need to reduce its forecast that world oil demand would increase by 900,000 barrels per day next year. "We are worried about demand," he told Reuters. "The financial crisis is deeper than we expected and this is definitely influencing world oil demand."
The Iraqi oil minister, Hussain al Shahristani, said he, too, was worried about the dip below $100, which he called "the fair price". "When it was $140, it was too high and could have had negative effects on some economies... but the fall to below $100 will put pressure on the budgets to countries like Iraq, which needs lots of money for reconstruction after years of war," he told Reuters. He suggested Opec should move to reduce output.
"We will not allow production to exceed demand in a way that would negatively affect crude prices," he said. The warnings of a production cut came as Qatar announced it would start cutting its small oil output to abide by Opec's decision at its last meeting to return to September 2007 production quotas. "We are cutting to restrict ourselves to the official quota, as we agreed in the Opec meeting," said Abdullah bin Hamad al Attiyah, who is also the country's deputy premier. "It is small amounts."
Concerns about oil demand were amplified by news from the US, where the Energy Department cut its forecast for US oil demand this year by 270,000 bpd compared with last month. The department's Energy Information Agency also reduced its forecast for world oil consumption by 340,000 bpd. The EIA said oil prices would average $112 through the rest of the year. * with agencies