OPEC urged to cut oil output as global production breaks new records

The cartel has been flooding the world market with cheap oil, apparently in a bid to put shale oil producers out of business.

Opec is producing more oil than ever despite flat demand (Associated Press)

The International Energy Agency (IEA) yesterday urged Opec countries to swiftly deliver on promised production cuts as a global oil glut reached record levels.

The global watchdog said production from the Organisation of the Petroleum Exporting Countries hit a new high of 33.64 million barrels a day in September. Iraq produced more oil than ever, while Libya reopened oil ports.

Further boosting global supply levels is the fact that production in non-Opec member Russia hit a post-Soviet record.

While supply is running high, the IEA said demand is slowing along with the global economy – a combination that could put pressure oil prices. The IEA forecast that the market will remain oversupplied until mid-2017 if Opec doesn’t enact last month’s pledge in Algeria to cut supply to between 32.5 and 33 million barrels per day.

“Opec has abandoned its free-market policy set in train almost two years ago. Global oil inventories are far too high – in the view of some producers – and they aren’t being worked off nearly fast enough,” the IEA said. “The current price of oil has caused discomfort for all producers.”

At last month’s meeting, Opec countries said the specific details of the overall production cut would be ironed out at a meeting in Vienna on 30 November. Timelines and country-by-country breakdowns have still to be worked out, though Iran, Libya and Nigeria may be exempt from the cuts for various reasons.

“Now the real work starts,” the IEA said.

It’s also unclear how much non-Opec members, notably Russia, are willing to play along. Russia President Vladimir Putin intimated at a meeting in Istanbul on Monday that Russia was ready to support Opec, which further buoyed oil prices.

Oil prices are running near one-year highs following the pledge, having risen by about 15 per cent in the past two weeks. In Tuesday morning trading, light profit-taking saw a barrel of benchmark New York crude fall 4 cents to $51.31 a barrel while Brent, the international standard, was down 18 cents at $52.96 (£42) a barrel.

Though way up from earlier in the year, when they fell below $30 a barrel for the first time in more than a decade, oil prices remain well down on levels seen beforehand.

In the summer of 2014, oil prices were trading above $100 a barrel but increased output from non-OPEC countries, particularly the US, created an oversupply in the market. Instead of cutting production, Opec opted to pump at high volumes to maintain market share and, seemingly, to drive US shale oil and gas producers, who have higher operating costs, out of business.

Analysts said a failure to push through the planned cuts could well see oil prices sink again.

“We still need to see if Opec follow through on their word though and there are still the all-important country-level quota details to hammer out which could have the potential to be a sticking point,” said Deutsche Bank strategist Jim Reid.