OPEC mulls cut in oil production to stem falling prices

VIENNA — In one of its most critical sessions in years, the Organization of the Petroleum Exporting Countries (OPEC) meets Thursday to seek a compromise on cutting production to stem falling oil prices.

Energy ministers from the 12 nations that account for 40% of global oil supplies have seen prices drop to their their lowest levels in four years, as output runs ahead of demand. Prices have fallen 30% since they last met in June.

Finding a consensus among the members — Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela — won't be easy because of broad disagreements on what production levels will be.

"All the numbers suggest that OPEC is producing well above what it's going to need to produce next year just to keep the market balanced," said John Kingston, of Platts, an energy-information service. "Unless this market is prepared to take a further plunge, somebody has got to make that excess oil disappear," he said.

On Wednesday, the January contract for Brent crude oil, the major international gauge for oil contracts, slipped to $78.28 a barrel. The January contract for West Texas Intermediate (WTI), the U.S.-focused barometer was $73.95 a barrel, a a four-year low.

OPEC has a formal supply target of 30 million barrels a day. But for the past six months, it has produced an excess of 600,000 barrels a day, according to the International Energy Agency. In October, OPEC and non-OPEC nations produced 94.2 million barrels of crude oil and related products a day — 2.7 million barrels more than a year ago, according to the IEA.

One reason for the supply glut: Non-OPEC members such as China, Mexico, Russia and the United States are now major oil producers. For the U.S., OPEC imports are running at a 30-year low because of a shale oil-and-gas production boom known as fracking. Shale is extracted by horizontal drills that fracture and probe sedimentary rocks.

The slide in oil prices is not just because of more abundant supplies. Demand also has leveled off. "You have flat-to-declining demand in a lot of the world," said Platts' Kingston. "Even in the U.S. where the economy isn't that bad, demand is only up a few hundred thousand barrels a day year-on-year. For a long time, places like the U.S. and Canada increased production, but it didn't send the market tumbling because demand was rising strongly. Chinese demand is up only maybe 1% year-on-year."

As a result, OPEC's clout is being put to the test. "The market has not really needed OPEC, and they haven't had to do anything recently," Jamie Webster, an energy director at IHS, a consultancy, said.

In 2008, amid dampening energy demand and a global financial crisis, OPEC convened an emergency meeting and slashed production by 1.5. million barrels a day. Even so, prices fell immediately after the cut.

A survey by Bloomberg shows analysts are divided over whether OPEC members will agree in Vienna to cut supplies to boost prices.

On Tuesday, Saudi Arabia, OPEC's top producer, and non-OPEC members Russia and Mexico met in Vienna but they did not appear to reach a consensus. Russia is concerned about losing tens of billions of dollars in revenue because of sagging prices.

In response to a question about whether he thought Thursday's meeting would be difficult, Saudi Arabia's Oil Minister Ali al-Naimi, said: "No — why? This is not the first time the market is oversupplied."

But IHS' Webster said the meeting is more challenging than most. "Not only do we have a low price — which they have dealt with in the past — but we're also dealing with shale oil and trying to understand (its impact). It's a very big meeting, definitely, up there."