The Times
Carl Mortished, World Business Editor
Expectation that a further cut was imminent sent the oil futures markets higher yesterday, with the price of US light crude trading more than $3 higher at $48.83 before falling back.
Abdullah al-Badri, the secretary-general of Opec, suggested that a cut was an option available to the group of oil exporters. “All options are on the table,” he said yesterday.
However, al-Hayat, a Saudi-owned newspaper, suggested that there was no need for a further cut if Opec members met the previous target of a reduction in output of 4.2million barrels per day (bpd).
Members of the cartel are suffering a cashflow squeeze because of a $100-a-barrel fall in the oil price since last July. In December, the 12 members agreed to a target of 24.845million barrels (excluding Iraq, which is suspended from quota obligations), but the full cut of 4.2million bpd has still not been achieved.
It is believed that only half the cut was achieved in January, with the most hawkish states – Algeria, Iran and Venezuela – making only token reductions amounting to no more than 200,000 bpd in total in output, while Saudi Arabia alone reduced its output by more than one million bpd.
Compliance in February is believed to have been greater, according to the Centre for Global Energy Studies (CGES). “There is evidence real cuts were made in March,” said Julian Lee, of the CGES, which estimates that compliance is now 800,000 bpd shy of the 4.2million bpd cut target.
Both Iran and Venezuela have called for further production cuts by Opec, arguing that stocks were still too high, and a further fall in global oil demand of one million bpd is being predicted.
Further evidence of weak demand emerged yesterday from China, where industry sources indicated that the country's strategic storage tanks of crude oil had been filled. China has been stockpiling crude in four new coastal storage sites capable of holding about 100million barrels of oil – equivalent to about one month of China's crude oil imports.
Confirmation that the storage tanks were being filled and that the process was complete represents a bearish signal to the oil market, according to Mr Lee. He said: “That would knock a little dent in Chinese demand. Over the next month or so, we will see a further slip in Chinese demand.”
Christopher Bellew, of Bache Commodities in London, said: “My feeling is that Opec is able to prevent further price weakness, but until the over-hang of oil stocks begins to be eroded, they will struggle to raise prices.”
