Details of high-level talks between oil producing countries have leaked out.
Two of the world’s major oil producers – Saudi Arabia and Russia – have both signalled they have no plans to turn off the taps despite plunging oil prices that are impacting on their economies.
Many oil producers have had to rip up economic blueprints based on $100 per barrel oil prices and rewrite them as prices have fallen below $80.
Russia, which outputs around 11% of the world’s oil, exited the meeting with delegates pledging Moscow would not reduce supplies even if the price per barrel drops to $60 – even though Russia needs at least $100 a barrel to produce oil at a profit.
The consensus from most countries is the US race to exploit shale oil and gas and the general world economic malaise are pushing down prices.
Shale oil and gas has meant the US is less reliant on oil imports, while the world downturn has reduced demand from major industrial countries.
OPEC leader Saudi Arabia’s oil minister Ali al-Naimi emerged from the meeting stating he expected oil prices to stabilise.
Behind-the-scenes the oil producing countries are all desperate to prop up their ailing exports by grabbing a larger share of the market.
Russia, which is not a member of OPEC, seems set on triggering a price war to keep the flow going and foreign currency coming in.
OPEC and Russia can continue jockeying for position – but the risk is customer countries can play them off against each other to gain a lower price which will continue to push the value of oil down.
OPEC and Russia can continue to play these pricing games because Western countries are refusing to buy oil from Iran due to sanctions imposed over alleged nuclear research breaches.
If these sanctions were relaxed, OPEC and Russia could expect to see a flood of Iranian oil hitting the market, pushing prices even lower.
“OPEC understands that too much oil is being produced and that this is likely to continue for at least a year or so until the market corrects itself,” said an OPEC spokesman.
“It would also seem that the Gulf State oil producers are less worried about falling prices and the effect on their economies than other nations.”
This was viewed as a reference that falling prices are more likely to hit producers with higher costs of exploiting their oil reserves – which includes the USA’s shale oil stocks.