A mild northern hemisphere autumn has wiped a fifth off the cost of oil since late August when hurricane damage to the US industry sent prices to record highs. OPEC-member Venezuela, typically hawkish on prices, has already said the organisation might need to consider cuts to offset recovering U.S. production from the Gulf of Mexico.
The producer group has been pumping flat out at about 30 million barrels per day to keep world markets supplied, with Saudi Arabia taking the lead. I think it has to be evaluated. There is an important volume from the Gulf that has still not entered the market and that could impact the market and probably Opec will have to discuss a cut in production, Venezuelas Energy Minister Rafael Ramirez said on Tuesday.
The decline in the basket price may pull other Opec ministers round to Ramirezs view. Oil producers have grown accustomed to prices well in excess of $50 after a two-year rally fuelled by strong demand from top consumer the United States and the rapidly expanding economies of China and India. In 2003, OPECs crude price averaged just $28.1. It peaked above $61 on September 1. Opec President Sheikh Ahmad al-Fahd al-Sabah of Kuwait said earlier this week the group would wait until cold weather sets in before deciding production policy.
On Thursday, temperatures in northern Europe sank and forecasters predicted a cold snap in the US northeast. Opec is next due to meet to set output Dec. 12 in Kuwait. At its meeting in September, the cartel agreed to offer all its spare capacity, the lions share of which is held by Saudi Arabia, from October 1 for three months. I think now everybody...is more satisfied with these prices than before, Sheikh Ahmad said at the weekend.
Opecs basket of oils is normally valued at around a $7 a barrel discount to US crude. On Thursday morning US crude was hovering below $58 after a surprise drop in US crude stocks sent it racing $1 higher late Wednesday.