Prominent oil price forecasters expect Opec to cut production at its meeting next week in order to keep prices at or above US$100 a barrel, following a slump in prices this week. Production curbs will hold the price between $100 and $110 through to the end of the year, Tobias Merath, the head of commodities research at Credit Suisse, told Reuters. "Opec countries are producing quite a bit of oil since March and that is apparently working. But the moment oil drops below $100, they will be quick to cut back production," he said. "We think it can test $100 or drop slightly below it in a couple of weeks, but it should not remain below $100 on a sustained basis."
Mr Merath said that weaker demand for crude from the US and OECD countries in recent months had offset higher demand from emerging markets, keeping overall consumption flat. Prices fell yesterday to $108.03, after the US government announced it would release 250,000 barrels from the Strategic Petroleum Reserve in response to production disruptions caused by Hurricane Gustav. The price fell more than $6 on Tuesday, sinking briefly to a low above $105 not seen since April, as traders reacted to news that the hurricane had spared US oil facilities.
Bullish sentiments gained weight yesterday when T Boone Pickens, an oil industry billionaire known for his price acumen, predicted Opec would cut output to support the $100 price. "Opec likes it up here," Mr Pickens told CNBC in a live interview. "I think they'll support it and cut production." Mr Pickens has an interest in high prices, after investing billions in wind technology and urging Americans to reduce their consumption of oil products.
In the week before the meeting, Opec oil ministers have appeared publicly divided over the need for a cut in output. Yesterday, the Ecuadorean oil minister, Galo Chiriboga, said he would propose that the group kept output levels unchanged, echoing similar statements by Nigerian officials. On Monday, Libyan officials said output would probably remain unchanged. Representatives from Iran, however, who often fall in the camp of price "hawks", have thrown their public support behind a cut in output.
A fall in output would come after several months of increases in production above quotas, led principally by Saudi Arabia, which increased production by a total of 500,000 barrels a day in June and July in answer to record prices. A survey by Dow Jones, however, found that Opec production last month declined by 0.16 per cent from the previous month. Higher production in Angola and Nigeria failed to offset a drop in Iraqi and Saudi output, the survey found.
As a bloc, the group of 13 oil exporters pumped 32.57 million barrels a day last month. Dalton Garis, an associate professor of economics and market behaviour at the Petroleum Institute in Abu Dhabi, said Opec was likely to test the market by agreeing to a modest cut in output. Mr Garis said it was an optimal time to test the response of the market because geopolitical threats had cooled and consumption was at a mid-season low between summer and winter in the northern hemisphere.
* with agencies cstanton@thenational.ae