BUSINESS

Oil hovers below US$83 a barrel in Europe ahead of OPEC policy meeting

06/14/2012 08:40 EDT | Updated 08/14/2012 05:12 EDT
The price of oil hovered below US$83 a barrel Thursday as markets awaited an announcement from OPEC, where some members of the cartel were pushing for the group to cut crude production amid falling prices.

By early afternoon in Europe, benchmark West Texas Intermediate crude for July delivery was up 11 cents at US$82.73 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 60 cents to settle at $82.62 in New York on Wednesday.

In London, Brent crude for July delivery was up 10 cents at US$96.82 a barrel on the ICE Futures exchange.

The Organization of Petroleum Exporting Countries, which accounts for about 40 per cent of global crude output, is scheduled to hold its quarterly meeting later Thursday with the 12-member cartel split on whether to cut production quotas.

After a 22 per cent drop in crude prices from early last month, some OPEC members such as Iran and Venezuela will likely support an output reduction to help push prices higher. However, Saudi Arabia, the group's biggest producer, is expected to call for quotas to remain unchanged.

"We do not expect any change in the official production target of 30 million barrels a day set in December 2011, given the very different interests of the parties and consequent difficulty in achieving a common consensus," said a report from JBC Energy in Vienna.

Also complicating the issue is that OPEC's current output is significantly higher than the official target.

"OPEC is already producing between 31.6 million and 31.9 million barrels per day at present," said analysts at Commerzbank in Frankfurt. "Any attempt to reduce the overproduction is likely to be blocked by Saudi Arabia and its allies, so the most probable outcome is that the status quo will be maintained."

Analysts say they don't expect OPEC to cut supplies unless global economic growth shows signs of a sharper slowdown.

"If things remains as now and the global economy muddles through, the case for a sharp immediate change in oil output policy looks questionable," Barclays said in a report. "However, should those fundamentals worsen sharply the margin of disagreement within OPEC is likely to narrow significantly."

Crude has hovered in the low $80s for about the last two weeks after plunging from US$110 in February. Barclays estimates that if prices were to stay where they are, the U.S. and Europe would each save US$100 billion on their annual crude import bills.

In other energy trading, heating oil was down 0.21 cent at US$2.6088 a U.S. gallon (3.79 litres) while gasoline futures fell 0.73 cent to US$2.6481 per gallon. Natural gas added 2.5 cents to $2.21 per 1,000 cubic feet.

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