Get out of energy sector. It's going down with oil glut.
OPEC Plans Oil-Production Cuts
In Next 10 Days to Boost Prices
By ALEXEI BARRIONUEVO and BHUSHAN BAHREE
Staff Reporters of THE WALL STREET JOURNAL
With crude prices sinking and inventories ballooning, the Organization of Petroleum Exporting Countries is preparing to sharply reduce its production again in the next 10 days.
Saudi oil minister Ali al-Naimi said the cartel is discussing production cuts of one million to 1.5 million barrels a day, or some 4% to 6% of its current daily output of 24.4 million barrels a day, excluding Iraq. The reduction would be effective starting Sept. 1, Mr. Naimi said.
OPEC's timing could be dangerous. Despite perceptions that the global economy is slowing down, demand usually picks up in the winter. Any shortfall in crude supply could result in tight heating-oil supplies and send prices soaring again. However, other analysts note that heating-oil and diesel-fuel inventories are 9% higher than a year ago, justifying a production cut.
Mr. Naimi indicated that the cartel believes it needs to act even before prices drop below the floor of $22 (25.25 euros) a barrel that OPEC set about a year ago. The price for OPEC's so-called basket of seven benchmark oil prices fell as low as $22.64 a barrel last Wednesday.
"All the sources of information are leading us to believe that we are heading toward a crisis, that demand is diminishing, supply is excessive," Mr. Naimi said. To keep OPEC oil prices within its target of $22 to $28 a barrel, the group "should take drastic action to cut production," he said.
On Friday, Mr. Naimi's comments sent futures prices for the U.S. benchmark on the New York Mercantile Exchange up 89 cents to $25.59, breaking nine straight days of losses. Prices for the U.S. benchmark crude tend to run $3 to $5 a barrel higher that the OPEC basket.
Over the weekend, OPEC President Chakib Khelil called on other ministers to try to reach a consensus on how much OPEC should cut, said a person at OPEC, adding that the cartel could make its decision in seven to 10 days. Ministers haven't decided whether they will hold another special meeting ahead of their scheduled meeting on Sept. 26, or simply consult by telephone.
OPEC, which controls about 40% of the world's daily oil production, has already cut its output twice this year by a total of 2.5 million barrels a day. It began to consider an additional cut at its July 3 meeting, after realizing that an unexpected drop in global demand and intense refining efforts had both crude and refined product inventories swelling.
Those in the oil markets note that the number of oil contracts held by traders on the New York Mercantile Exchange stood at a five-year low on July 10, indicating a strong expectation that prices will continue to fall.
Some analysts think markets are relatively balanced right now and expect OPEC to settle on a cutback of less than one million barrels a day. More than that could lead to $30 a barrel oil again, predicted Adam Sieminski, oil strategist at Deutsche Banc Alex. Brown. "With the U.S. economy going nowhere and Germany and Japan slipping, these guys are playing with dynamite," he says.
Ministers also may be nervous about the impact of Iraq, which halted two million barrels-a-day of shipments for about a month, but has since restarted its exports.
OPEC's success over the past year at keeping prices in its target range has emboldened ministers to try to micro-manage the market. "These ministers are like a drunken sailor at a casino in port," said Amy Meyers Jaffe, senior energy analyst at the James A. Baker III Institute for Public Policy. "They have been winning and there have been no consequences and they don't think they can lose."
-- Dow Jones Newswires contributed to this report.
Write to Alexei Barrionuevo at alexei.barrionuevo@wsj.com and Bhushan Bahree at bhushan.bahree@wsj.com |
