Oil prices have not risen as OPEC had hoped following its decision to cut total output by one million barrels a day. The problem is traders doubt that all the cartel’s members’ have the resolve to reduce the amount of crude they are pumping as they promised last week.
OPEC’s first output cut in two years was intended to halt a slide in prices. Since hitting a record of 78.50 dollars a barrel during the fighting in Lebanon in mid August, Brent is down by around 25 per cent.
Even though OPEC’s biggest exporter, Saudi Arabia, has told its customers it will reduce sales by up to 8% in November, traders said the cartel has a poor record for sticking to output targets in the past.
OPEC’s President – Nigeria’s Oil Minister Edmund Daukoru said if they do not, it will mean problems in the future: “Current overproduction – excess supply – is about one million barrels per day. That probably will built up – according to forecasts – to about two million barrels per day by the second quarter of next year; it doesn’t make any sense. We stand ready to give the market as much oil as the market needs to refine, but the current excess is just a bit too much.”
Strong OPEC output in recent months means inventories are high ahead of peak winter demand. For example, the United States has stocks of crude that are 23.1 million barrels above this time last year.
Traders do remain worried about supply disruptions in producer countries, such as Nigeria which has been plagued by militant attacks and the kidnapping of oil workers.