OPEC is concerned about a fall in oil prices after it cut output by 1.5 million barrels per day (bpd) but it will take time to determine whether the reduction is deep enough, Kuwait’s oil minister said on Friday.
“Yes we do worry. But we have to watch,” Mohammad Al-Olaim told newswire Reuters in an interview.
Even though crude prices fell by nearly $5 after the agreement, Al-Olaim said the 12-member producers group will not need to gather again to consider another cut before a Dec. 17 meeting.
“I think this is enough time to evaluate the effect of the decision,” he said.
International benchmark US crude has slumped by close to 60 percent from a record high of $147.27 hit in July. On Friday, it fell again to below $63 a barrel.
Despite the dramatic price fall, Al-Olaim said the scale of the cut should not have surprised markets because it had already been factored in.
“I think what we have done today, the market was already prepared for. I think it was priced in.”
OPEC’s failure to respond to a collapse in demand to the Asian crisis in 1998 helped push oil to less than $10 a barrel. Now the producers group faces the task of tuning oil output as a financial crisis grips the world amid a threat of recession.
Al-Olaim said OPEC will closely monitor the market this time.
“They [OPEC] will keep an eye on the market. If the market required [action] we have to be there,” he said.
“I hope the market will take this decision as a positive.”
OPEC members have stressed that they do not want to inflict more pain on consumer nations suffering from the global financial crisis.
But at the same time, they argue that if prices fall too low it would prevent investmeent in raising output in future and create a supply crunch.
“It’s better to keep it balanced… We have to think about the others,” the minister said.
Al-Olaim declined comment on what he thought was a fair price that would satisfy producers and consumers during the global financial squeeze.
“In the time being you can’t talk about a fair price because you can’t see where the global economy is going,” he said.
Pointing to evidence of a slump in demand, Al-Olaim said some of Kuwait’s customers had decided to delay crude deliveries.
“Some of the customers already decided to cut their share. Some people decided to delay their shipments. They decided to cut before us,” he said. (Reuters)
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