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How low will crude oil prices go? Oil markets keeping close eye on OPEC to see how far cartel will allow oil prices to fall before members cut production Petroleum News
Crude prices dipped below $57 per barrel in mid-November on forecasts that U.S. oil inventories were growing and that high oil prices were dampening global demand.
Still, crude is more than 20 percent higher than a year ago and markets remained jittery that cold weather could drain heating oil stocks. Forecasters are predicting much lower temperatures — and thus higher demand for heating oil — in the coming weeks.
Also, traders are starting to worry that the Organization of Petroleum Exporting Countries might make end-of-year oil production cuts when the group meets in December, said Alaron Trading Corp. analyst Phil Flynn.
OPEC had boosted oil production after hurricanes Katrina and Rita struck oil facilities in the Gulf region.
“They’re more and more concerned they’ll have an oil glut” Flynn said. “OPEC is more than happy to rein in overproduction.” Hints expected from Nov. 19 meeting According to a Nov. 16 Dow Jones Newswire report, the big question is no longer whether OPEC members can pump enough oil to meet winter demand, but how low oil prices will go before the cartel slashes production.
“Some hints may be forthcoming at the group’s next meeting Dec. 12 in Kuwait, while early clues may come at a gathering at the weekend (Nov. 19-20) in Riyadh, Saudi Arabia, of top government officials from the world’s biggest oil producers and consumers,” Dow Jones said.
OPEC has long since scrapped its $22-$28 target price for crude, but has not officially identified a new level at which it would cut its production to maintain prices.
With the worst part of winter in the northern hemisphere still ahead, the cartel doesn’t want to do anything that will cause a spike in oil prices. Instead, Dow Jones said, it “will likely aim to assure adequate supplies, while keeping a wary eye on weakening prices to try to engineer a soft landing when winter demand ebbs.” Somewhere between $30-$50 The buzz in oil markets is that $40 to $50 per barrel crude is an acceptable near-term crude price for OPEC members.
“An OPEC output cut doesn’t appear to be in the cards at the Kuwait meeting, but ministers must send some sign to the market as their temporary suspension of output caps lapses at the end of the year,” Dow Jones said, noting that Saudi Arabia’s Oil Minister Ali Naimi has said in recent months that high crude prices aren’t in the best interests of producers or consumers. But Naimi has also said that oil prices must be high enough — between $30 and $50 per barrel — to provide acceptable returns on investments.
In late September Saudi Arabia’s Foreign Minister Saud al-Faisal said his country would be satisfied with crude prices in the $35-$40 range.
Conventional wisdom, Dow Jones said, would suggest OPEC needs to consider the new threshold price it would defend soon, in order to prepare for the post-winter drop off in demand. l
—The Associated Press contributed to this report
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