OPEC could be forced to reduce its oil production by half a million
barrels a day when it meets in December, the first cut in five years, as
the latest forecasts show the U.S. shale boom will dent demand for its
crude next year, Gulf delegates within the group said.
Oil markets are brimming with new barrels coming out of U.S.
shale reservoirs, and separate forecasts from the Organization of the
Petroleum Exporting Countries and the International Energy Agency last
week showed demand for OPEC oil next year will fall well below its
current production of around 30 million barrels a day.
"Based on what the forecast says, we would have to cut," said
one delegate from a Persian Gulf country that has tended to oppose
production cuts in the recent past.
A cut of about 500,000 barrels a day was likely to be debated
at the December meeting, said another OPEC delegate from the Gulf
region.
In recent meetings, Gulf countries, including OPEC kingpin
Saudi Arabia, have supported maintaining the group's collective 30
million barrel-a-day production ceiling. They have opposed production
cuts because they fear the resulting higher prices could hurt the oil
demand of their Western customers, whose economies are still recovering
from the 2008 economic crisis.
OPEC hasn't made a formal production cut since slashing 4.2
million barrels a day from its quotas when oil demand slumped and prices
crashed during the financial crisis in late 2008.
The views of OPEC's Gulf members have shifted after the first
detailed oil market forecasts for the year ahead showed demand for its
crude falling substantially below current production.
On Wednesday, OPEC forecast that demand for its crude in 2014
will be below its current 30 million barrel-a-day ceiling--by about
800,000 barrels a day for the first half of the year--and about 400,000
barrels a day lower across the whole year.
On Thursday, the IEA estimated the need for OPEC crude would
be just 28.85 million barrels a day in the first half of 2014, and about
29.4 million barrels a day for the whole year. Some of this demand
could also be satisfied by drawing oil out of inventories, the IEA said.
The drop in demand for OPEC crude will come as oil supply
from countries outside the group, estimated to grow by between 1.1
million barrels a day and 1.3 million barrels a day in 2014, rises
faster than global demand.
In a note Monday, London-based oil broker PVM Oil Associates
Ltd. said recent forecasts clearly show the market is over supplied.
Another non-Gulf OPEC delegate said any decision to reduce the
group's ceiling would depend on where global oil inventories stand in
December. Supply disruption risks--such as the political crisis in Egypt
or recent Canadian floods--may also deter OPEC from cutting its
ceiling, the delegate said.
In its report last week, the IEA warned that an expected
increase of U.S. output next year of about 500,000 barrels a day could
be offset by disruptions caused by Middle-Eastern political unrest or
unplanned outages in the North Sea.
OPEC could also rule against a reduction if prices remained
above $100 a barrel, said the first Gulf delegate. International crude
benchmark Brent moved down slightly Monday morning to $108.65 a barrel.