| The real news is buried -- non-OPEC oil production is increasing even as OPEC tries to take oil off the market. And OPEC members are already below quota, so the quota cuts have to be deep to have an effect. Couple that with a decline in market demand and it looks like prices will continue to fall. |
Several ministers from the Organization of Petroleum Exporting Countries have spoken of an informal agreement to cut 1 million barrels per day of production, though analysts Wednesday were unsure whether the reduction would come from actual production or the official OPEC quota, which is higher.
Adding to the uncertainty was the silence from Saudi Arabia, the critical swing producer that has spent billions of dollars to boost production capacity and is being lobbied heavily by the U.S. administration to keep the taps open. “There is only one country that really counts and that country has not spoken yet, and that's the Saudis,” energy analyst Paul Ting said Wednesday.
Mr. Ting said several OPEC countries are producing well below their quotas. The group's quota exceeds output by a range of 360,000 to 500,000 barrels a day, according to different estimates. As a result, any agreement would have to reduce production from September levels, rather than from the current quota, to have a significant impact.
Crude prices Wednesday continued to fall from the record heights of this summer. The near-month futures price for West Texas Intermediate crude was down 93 cents to $57.59 (U.S.) a barrel on the New York Stock Exchange, the lowest close since last December.
The International Energy Agency — which advises major consuming countries — Wednesday trimmed its forecast of demand growth for 2007 by nearly 8 per cent, to 1.44 million barrels per day, citing an economic slowdown in the United States.
Meanwhile, the Saudis have told customers in Europe and Asia that they should expect the same level of supplies in November. “I don't think the market believes that OPEC is going to get a full one million barrels,” Bart Melek, senior economist with BMO Nesbitt Burns Inc., said.
Mr. Melek said that even such a reduction from current levels would not rebalance the market over the next couple of quarters. While demand growth is slowing, several non-OPEC producers are expected to boost their own production, notably Angola, Russia and Canada. Non-OPEC production is expected to average 52.7 million barrels per day next year, up from 51 million in 2006.
David Kirsch, an analyst with PFC Energy in Washington, D.C., said Saudi Arabia is deliberately allowing other OPEC members to take the lead on the production agreement, in order to reduce political pressure on the kingdom from the United States.