Oil slumps as Saudi rules out output cut – US stocks up

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LONDON, Feb 24, (RTRS): Oil fell below $33 per barrel on Wednesday after Saudi Arabia ruled out production cuts and an industry report said US crude stockpiles hit a record, underlining the supply glut. Saudi Oil Minister Ali al-Naimi said production cuts would not happen although more countries would join a deal to freeze output. OPEC and non-OPEC producers who support the idea are planning a mid- March meeting, his Venezuelan counterpart said. “Al-Naimi’s remarks punctured an oil-price rally that has lacked substance,” said David Hufton of broker PVM. “The market correctly interpreted the presentation as bearish.” Brent crude was down 88 cents at $32.39 a barrel at 1220 GMT.

US crude fell $1.17 to $30.70. Both dropped more than 5 percent in intra-day trading on Tuesday. Also pressuring prices, the American Petroleum Institute (API), an industry group, said on Tuesday crude inventories rose by 7.1 million barrels last week, far exceeding expectations of a 3.4-million- barrel rise. The US government’s Energy Information Administration, which said last week crude stocks hit a record high, releases its supply report at 10:30 a.m. EST (1530 GMT). Oil has slid from more than $100 a barrel in mid-2014, pressured by excess supply and a decision by the Organization of the Petroleum Exporting Countries to abandon its traditional role of cutting production alone to boost prices.

OPEC and outside producers have stepped up diplomatic activity following the slump in prices to their lowest since 2003 last month, and on Feb. 16 Saudi Arabia, Qatar and Venezuela plus non-OPEC Russia said they would freeze output. One stumbling block in attempts to forge a wider agreement is Iran, which is increasing output following the lifting of Western sanctions in January and whose oil minister was quoted on Tuesday as calling the deal “laughable”. And merely not adding more barrels to the market may have little impact on the excess supply, given that OPEC production is running at its highest levels in many years and increased further in January.

“At these levels, even if OPEC members honestly implement a production freeze deal, it will do little to improve balances in the coming months,” analysts at Energy Aspects said in a report. OPEC and non-OPEC producers should act quickly to rebalance the global oil market, otherwise they risk deep damage that could take a long time to fix, a senior Iraqi oil official said on Wednesday. Iraq had said it was willing to cooperate but gave no details on whether it would freeze its production. Iran, which is the biggest obstacle to a global deal as it focuses on ramping up output after sanctions were lifted, has said the freeze proposal places “unrealistic demands” on it.

Falah Alamri, Iraq’s OPEC governor and head of the State Oil Marketing Organisation (SOMO), did not say if Iraq would join other oil producers in the freeze deal but indicated that any change in the country’s output plans has to be done jointly with international oil companies who develop its main oil fields. “OPEC and non-OPEC countries should act promptly to rebalance world oil supply and demand or the damage could be deeper and take time to recover,” Alamri told the Argus Middle East Crude Conference in Abu Dhabi. He said the collapse and volatility in oil prices were not related to Iraq’s oil production, which has been growing at a steady pace each year in line with the global demand, and would continue to do so.

“Steady moderate yearly increases in Iraq oil production have been in line with the global oil demand,” he said. Iraq’s oil production was 4.775 million barrels per day (bpd) in January and the OPEC member currently exports “nearly 4 million bpd” including shipments from the northern Kurdish region, Alamri said. “At the end of the day we don’t want to flood the market with oil, we have to take into consideration the yearly demand. It will be a sustainable development but there will be no jump, it will not be affecting the international market,” he said. “Iraq will try to maintain its crude oil market share in Asia, Europe, Americas and other markets.”

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