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OPEC signals 'wait and see' approach could last a year

Published 16/12/2014, 17:59
© Reuters. An attendant prepares to refuel a car at a petrol station in Rome
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By Rania El Gamal and Amena Bakr

DOHA (Reuters) - Core Gulf OPEC oil producers signalled this week they are prepared to wait as long as six months to a year to see the market stabilise, quashing hopes for any quick intervention to stop the price rout that took crude to under $60(38 pounds) per barrel.

Some OPEC watchers had identified $60 as a potential red line at which the group, which produces a third of global oil, was expected to send a signal to the market that the decline had been too fast and too steep.

But with Brent oil futures trading below that - down a fifth since the OPEC meeting just three weeks ago -- some ministers are saying they see no reason for action at any price level.

Some OPEC ministers say the industry should look for other signals that prices had bottomed.

OPEC itself is struggling to predict what those signals could be -- a total saturation of global stocks, a bankruptcy of a large oil company or a call from Moscow saying Russia is ready to join output cuts.

"The market takes time, it's like a big gigantic ship," Suhail Bin Mohammed al-Mazroui, oil minister of the United Arab Emirates, a close ally of OPEC kingpin Saudi Arabia, said on Monday.

"If the market takes 3 month, 6 month, a year to balance and then that would help all of us because we will all have a more mature stabilised market. Then (so) be it."

Fellow Gulf OPEC member Qatar echoed that view on Tuesday.

"We need to watch the market closely, but it will settle eventually," Qatar's oil minister, Mohammed al-Sada, said.

Oil has lost almost half its value since this year's peak of $115 per barrel in June on slower global demand and the U.S. shale oil boom. The glut is expected to worsen in the first half of 2015 when demand declines seasonally.

DEMAND FOCUS

OPEC had been expected to address the problem in November by trimming production but Gulf producers led by Saudi Arabia blocked demand by poorer members to reduce supplies, saying the group needed to fight for market share.

"Saudi Arabia's relinquishing its role as oil price anchor has caused a catastrophic decline in the demand for inventory which has resulted in oil prices collapsing. Both physical and financial "inventory" holders have been selling,' PIRA energy said in a research on Tuesday.

It added that the selling pressure would not end until prices drop to the level where U.S. producers' hedging becomes uneconomic.

Mazroui said OPEC would be looking for "behaviour growth in additional production. We need to see that... wait till the first quarter and see."

He also said OPEC would need to see how badly the market was over supplied and for signs of demand picking up.

During the OPEC meeting Saudi oil minister Ali al-Naimi said he believed lower prices would ultimately spur demand growth and a price recovery, according to OPEC delegates.

However, the West's energy watchdog, the International Energy Agency last week cut its estimates for demand growth next year. It said slower economic growth in countries like Russia would lead to lower fuel consumption in 2015.

"There have to be concrete signs of a change in fundamentals, supply/demand/stocks before a decision on action by OPEC, as the recent fall in oil prices has no real reason," said an OPEC delegate familiar with the Gulf thinking.

Mazroui said it was everyone's responsibility to correct the market, repeating a message from several OPEC ministers that they wanted Russia to join production cuts.

© Reuters. An attendant prepares to refuel a car at a petrol station in Rome

Russia's Energy Minister Alexander Novak said on Tuesday Moscow would not cut output in 2015, even if pressure on its finances was rising with the economy showing signs of a severe stress and the rouble hitting an all-time low.

(Writing by Dmitry Zhdannikov, editing by William Hardy)

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