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29

Cartel seeks price of $25 a barrel

The Opec oil cartel said on Thursday it was still aiming for a price of about $25 a barrel for its oil, but its inaction betrayed the fact that, in the current political and market turmoil, it has few means to achieve that price.

The Opec oil cartel said on Thursday it was still aiming for a price of about $25 a barrel for its oil, but its inaction betrayed the fact that, in the current political and market turmoil, it has few means to achieve that price.
As they ended their two-day meeting in Vienna, Opec oil ministers left the level of their production quotas unchanged at 23.2m barrels a day, or about a third of total world consumption. They plan to meet again in early November in what they hope will be a calmer and clearer political and economic climate.
Chakib Khelil, Algeria's oil minister and current president of Opec, conceded the scale of the global economic slowdown and its impact on demand for the world's main fuel, partly because of "the huge fall in demand for jet fuel, estimated at 400,000 barrels a day around the globe".
In theory, an automatic cut in Opec output could come as early as next week, if the cartel follows its so-called market mechanism. This calls for Opec to take 500,000 barrels a day off the market if the price of the basket of Opec's seven crudes stays below $22 for 10 consecutive working days. Since the start of this week Opec's basket price has been below this, and stood at $20.11 on Wednesday.
But Ali al-Naimi, oil minister of Saudia Arabia, indicated Opec would still need to think further about what to do. "The problem is the price keeps bounding back and forth," said Mr al-Naimi. "Our purpose is to avoid reacting to such movements, which would aggravate the [market's] gyrations."
Rilwanu Lukman, Nigeria's oil minister, said Opec's market mechanism was "not sacrosanct", but was rather "a tool which is available if we need it".
The real floor price for Opec might be $20, Mr al-Naimi indicated, saying if the price stayed below this level "for quite a long time" this would spur the cartel into supply cuts.
Another way for Opec to take oil off the market would be for its members to stop cheating on their quotas. By some outside estimates Opec states are over-producing by nearly 1m barrels a day.
Opening the formal session yesterday, Mr Khelil warned that Opec's "credibility is only as good as the continuation of the effort among our member states to maintain cohesion, solidarity and co-operation".
But Mr Lukman, who is to take over as Opec president in January, admitted that "the more you cut the more difficult it is to comply" with quotas. Even before the terrorist attacks in the US, Opec had cut production three times in response to weakening demand - by 1.5m b/d in January, by 1m b/d a day in March and another 1m b/d in July.
This last cut only took effect on September 1, and part of the rationale for Opec's wait-and-see stance this week was the need to judge the impact of this most recent reduction on the market.
Neftegaz.ru