By Jeremy Cressswell – energy editor
Talk about predictable. That members of Opec meeting in Vienna today have decided to keep output where it is, despite crude oil prices slipping to a four-year low, is hardly surprising.
It took them five hours to come to their do nothing agreement, with Saudi petroleum minister, Ali al-Naimi shouldering the responsibility for speaking to the pack of reporters that were doubtless slavering for the bad news that was delivered.
Within minutes of the announcement, the North Sea’s benchmark Brent Blend had plummeted more than 3%, headed for 70 bucks a barrel and maybe lower.
Other key market grades also took a tumble, though I can’t help but think that there will be a partial recovery tomorrow and in the days to come. Bear in mind, one helluva lot of hype has built up and traders will be keen to make a fast buck; though some will of course be nursing losses.
However, will prices drift further? That’s quite likely, in my view.
Basically, oil prices have slumped by about a third, from around $115 mid-year to sub $75 today.
So why didn’t Opec cut; after all, members like Venezuela and Mexico were all for a reduction? Well, the cartel hawks won, including the Saudis on this occasion.
Bear in mind, for decades, Saudi Arabia has been regarded not just as Opec’s swing producer but, the world’s.
And I rather think they’re fed-up with being the world’s swing producer; the West’s “whipping boy”.
Non-Opec’s ”collective” attitude has always been, well, they’re a cartel and it’s their job to do something when prices go the wrong way; downwards of course.
Except there is nothing whatsoever collective about non-Opec.
Let’s do some picking through this rather disparate rag-bag.
Once a massive and growing importer of oil and potentially also gas, the US is today headed for self-sufficiency thanks to its domestic shale gas (and oil) revolution that has gained the most incredible traction over the past just five years.
So, do you think American producers give a toss? The last thing they’re ever going to do is rein back production.
They think that’s Opec’s job.
Do you think Vladimir Putin, boss of the world’s largest exporter of oil gives a jot? Of course not. There’s no way the Russians will cut.
He too thinks that’s Opec’s job.
Granted he met with the Saudis a few days ago; but they were likely sent away with a flea in their ear. This is in spite of the $140billion or so dent allegedly made in the Russian economy over the past few months by tumbling oil.
What about everyone else who classed as non-Opec? Like the North Sea for example?
Well, the province on Aberdeen’s doorstep peaked at 6.5billion barrels in 2000 since when output from both the UK and Norway has rocketed down to around 3million bpd today. The UK is a net importer and Norway’s exports have fallen sharply.
So we’re not really in the game?
We’re in no position to apply pressure on Opec anyway; only hope that something will happen that prevents the North Sea from falling apart. But we still expect Opec to cut; no-one else, however.
And that’s the danger. I can see the old cash cow getting by at around $80 per barrel with sensible management, but I think that $70 will result in a large number of old fields being terminated in short order and left cold until decommissioned.
That would be hugely damaging to Aberdeen.
But let’s see what Professor Alex Kemp of Aberdeen University has to say. He is the arch-modeller of all things North Sea; a sage.
It could be that what has the potential to turn into a rout could really focus minds and that Opec members could well decide to reconvene early in the new year to implement a cut, as much to save their own hides as anything else.
Meanwhile, consumers of every hue can only be rubbing their hands. Cheap energy is a key component of economic growth. So no-one’s going to be feeling sorry for Big Oil.
On that basis, I don’t suppose there will be much sympathy for Aberdeen’s position either.
A salutary thought perhaps. In the time that it has taken to scribble this, Brent has fallen another 3% and is within an inch of knocking on the lid of the $70 barrel.
Time to tighten our belts methinks.
And it is time for some really fundamental changes to the UK fiscal regime. Osbourne, Alexander and Co cannot be allowed to get away with tinkering around the edges.
To begin to fix the North Sea in fiscal terms will require a swingeing cut, including totally removing the 20% of Supplementary Corporation Tax slapped on by the last government … New Labour in case you’ve forgotten.
I for one await next week’s Autumn Statement with interest.
Recommended for you
