Political tension seen taking a backseat to keeping oil price at healthy high
Saudi Arabia’s biggest cut in oil output in three years is a sign OPEC’s largest producer is finding common cause with its long-time rival Iran.
The kingdom reduced supply by 400,000 barrels a day, or about 4 percent, last month, Oil Minister Ali al-Naimi said Oct 8, reversing increases that it started in April, when declining Libyan exports sent North Sea Brent to a 2 1/2-year high. Crude prices have fallen 14 percent since then as the North African nation revived production and the International Energy Agency lowered its forecast for global demand.
Cutting output brings Saudi Arabia closer to Iran, which this year urged Arab members of the Organization of Petroleum Exporting Countries to restrict supplies. Tension between OPEC’s two top producers escalated in March as Persian Gulf nations accused Iran’s Shiite leaders of supporting unrest in Bahrain and other Sunni-led monarchies, a charge Iran denies. Relations soured further when Iran opposed a Saudi proposal at OPEC’s conference in June to pump more oil.
“Despite their mutual antipathy, neither country wants prices to fall below $100,” Leo Drollas, the London-based chief economist at the Centre for Global Energy Studies, an oil consultant founded by former Saudi Oil Minister Zaki Yamani, said. “Iran needs oil as high as it can get it, while the Saudis can live with $90. As oil falls, they become reluctant bedfellows.”
OPEC’s oil basket, a weighted average of the group’s main export grades, fell to $99.64 on Oct. 3, dropping below $100 a barrel for the first time since Feb. 18 and ending its longest run above that level. Brent, a benchmark for more than half the world’s oil, slid 11 percent on the ICE Futures Europe exchange in September, the biggest monthly decline since May 2010.
Brent traded at about $112 a barrel today, 12 percent below this year’s settlement high of $126.65 on April 8. OPEC’s basket was worth $108.83 yesterday.
Saudi Arabia reduced supply to 9.4 million barrels a day in September, from 9.8 million in August, according to the Riyadh- based Joint Organization Data Initiative, or JODI, which compiles statistics supplied by governments. The kingdom hasn’t lowered output so much in any month since December 2008, when OPEC sought to revive prices as the global financial crisis began driving the world into a recession.
The IEA cut its 2011 global oil-demand forecast for a third month on Oct 12. The world will consume 89.2 million barrels a day this year, the Paris-based adviser to 28 governments said in a monthly report, compared with a July forecast of 89.5 million. It also lowered expectations for 2012 demand.
Saudi Arabia, a mainly Sunni kingdom allied with the US, accounted for 28 percent of OPEC production last year, according to the producer group’s data. Iran, led by Shiite Muslim clerics and the target of US sanctions because of its nuclear program, supplied 12 percent.
The US said Oct 11 Iran was behind a plot to murder Saudi Ambassador Adel al-Jubeir. Manssor Arbabsiar, an Iranian- American car salesman, pleaded not guilty in a Manhattan federal court on Oct 24 to conspiring with a member of Iran’s “Qods Force” to kill the diplomat.
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