LONDON (Reuters) – Mixed signals from Saudi Arabia have thrown into question whether the top oil exporter will throttle back output as agreed with other OPEC members this week.
Saudi Arabia, the most influential member of OPEC, signed up to a deal on Wednesday that would cut output by around half a million barrels per day (bpd) after oil prices fell from a peak above $147 a barrel in July to just above $100.
Any cut would be made primarily by Saudi Arabia, which produces most of the additional barrels above OPEC’s agreed target.
Concern about the effect of high fuel prices on the economies of leading energy consumer the United States and of other big consumers could prevent the OPEC kingpin from enacting the cuts, however, analysts said.
“It always comes down to what the Saudis want to do, but the fact that they don’t appear happy with the decision throws up a question mark (about OPEC cuts),” said Mike Wittner, energy analyst at Societe Generale.
“There are political considerations and Saudi Arabia and other moderate OPEC members have a genuine concern that while higher oil prices didn’t cause the economic slowdown, they are an extra weight on the economy,” he said.
But he added he expected Saudi would eventually cut output.
COMMITMENT TO MEET DEMAND
Saudi-owned daily Al Hayat said in an unsourced report on Thursday that the oil powerhouse did not intend to cut production as it was committed to meeting demand for its crude.
Saudi Oil Minister Ali al-Naimi has not spoken since OPEC’s agreement, reached in the early hours on Wednesday, to adhere strictly to its production targets.
Before the group met, Naimi said the kingdom would continue its policy of meeting all oil demand from its customers.
A senior Gulf source said on Tuesday that consumption was not expected to fall significantly until the second quarter of 2009 and he expected Saudi Arabia to continue pumping at around its current rate, if demand held steady.
Shokri Ghanem, head of Libya’s state oil company, who has repeatedly said the market was in danger of becoming oversupplied, insisted to Reuters on Thursday that OPEC would cut.
After briefly rising by a dollar following the OPEC decision, oil prices touched a five-month low just above $100 on Thursday. Concerns Hurricane Ike could disrupt the U.S. oil sector pushed prices up on Friday and analysts said the market was waiting for concrete signs Saudi was reducing output.
“It is just unclear. I think the market will want to see confirmation in time spreads or freight rates or differentials,” said Thomas Stenvoll, an oil strategist for UBS.
The Organization of the Petroleum Exporting Countries as a group has kept its collective output target steady all year, after agreeing to raise its ceiling in September 2007 by a modest 500,000 bpd.
At a specially convened meeting to address runaway oil prices in Jeddah in June, Saudi Arabia announced unilaterally that it would pump 9.7 million bpd, around 750,000 bpd above its agreed ceiling.
“(Saudi Arabia) has produced above quota every month since quotas were increased and announced two unilateral increases. We believe this demonstrates that it does not want a triple digit oil price,” said Dresdner Kleinwort in a research note.
Demand in top oil consumer the United States has already fallen by the fastest rate since 1982 in the first half of this year.
A serious move to trim output now, as hurricanes threaten U.S. energy infrastructure and companies gear up for the peak demand northern winter, could send prices spiking, analysts said.
Saudi Arabia could also be worried that if prices remained high, consumption could drop even more — and send oil lower in the longer term.
“The Saudis may be the only country with some idea of just how much of an impact high prices have had on hurting demand,” said Peter Beutel, president of Cameron Hanover.
“The higher they raise it (the price) now, the lower it will go because of the massive dislocation to the global economy.”