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10 June 2023

Opec to sit tight amid US recession fears

By Agencies

Oil cartel Organisation of Petroleum Exporting Countries (Opec), which this week maintained its production target amid uncertainty over the US economy, could well sit tight again when it meets in the Austrian capital in early March, analysts said.


On Friday at an extraordinary meeting in Vienna, the Opec left its official daily output ceiling at 29.67 million barrels of oil, insisting the market was adequately supplied.


The cartel, which produces 40 per cent of world oil, snubbed US demands for an increase and focused instead on supporting prices that have fallen 10 per cent since the start of the year.


"Opec is meeting again in five weeks on March 5th [for a regular session] and such a move would give it more time to assess latest developments in the US," said oil analyst Andrey Kryuchenkov at the Sucden brokerage.


Fears of a US recession abound after the US government revealed on Friday that the economy lost 17,000 jobs in January, marking a decline in employment for the first time since August of 2003.


"Opec remains concerned about a potentially deep recession in the US, which could reduce demand growth for energy and until this becomes clear the group is unlikely to make any significant policy shifts," said Kryuchenkov.


Friday's freeze was a snub to the United States after President George W Bush recently urged Opec to increase output to help bring down high oil prices that stunt economic growth and fuel inflation.

Since striking a high above $100 (Dh365) at the start of the year, the price of oil has slid owing to fears of a US recession and a global economic slowdown. However at around $90 (Dh328.5) a barrel currently, it remains almost double the level of a year ago.


Even so, this is not enough to please some Opec members, analysts said.


"Their instinct was to cut" on Friday, said Simon Wardell of Global Insight.


Only pressure from the US made them "wary," he added. 


Opec members, notably Iran and Venezuela, said in Vienna this week that the organisation may have to cut output in March should crude prices continue to weaken.


Lower oil prices are not welcomed by the cartel's producers as their export income drops. Saudi Arabia, the world's biggest exporter of crude, is producing about nine million barrels of oil per day, so even small changes in prices significantly affects the kingdom's revenue.

OPEC feels justified in ignoring US calls for higher output simply because oil futures have fallen by a significant amount since the price of New York crude struck an historic high of $100.09 (Dh365.33) a barrel on January 3, analysts said.


But winning public support for a cut in production in March would be much harder, especially if prices hold at current high levels, they added.


"If they stay in a $90 range, how could they cut?” questioned Paul Tossetti of PFC Energy.


Nigeria, an OPEC member and Africa's biggest oil producer, said Friday's decision had been unanimous.


"March's decision maybe more difficult to take but we'll see what happens," Nigeria's Minister of State for Energy, Odein Ajumogobia, told reporters.


"That's the whole idea, between now and March, to keep a close watch on the factors that have affected the price volatility over the last few months." (AFP)