OPEC's Plan Falls Apart As Price Of Oil Plunges

Oil extended gains above US$49 (RM217) a barrel as USA government data showed an unexpected fall in crude stockpiles, the first decline this year.

In December, OPEC agreed with 11 non-members, including Russian Federation, to cut output in the first half of this year to push prices higher.

Over the past year, the depressed commodity prices forced several United States oil and gas producers to reduce their output in order to sustain their operations.

In terms of output, the IEA noted that member countries of the OPEC oil-producing cartel cut their production for the second month in a row.

"Despite the supply adjustment, stocks have continued to rise, not just in the US, but also in Europe", OPEC said in the report.

USA shale oil, where operations are more cost-prohibitive than in other parts of the world, has been more resilient to the low price of oil than expected.

That accord had aimed to cut world oil supply by 1.8 million barrels a day (around 2% of world output) from January through June, to speed the rebalancing of a world market suffering from a glut.

The Saudi energy ministry rushed out a rare statement on Tuesday evening re-asserting its commitment to "stabilising the global oil market", according to a report in the Financial Times. However, this bounce back in oil prices made it economically viable for several U.S. oil and gas producers to produce oil at above the $50 per barrel price. USA oil inventories have increased by 50 million barrels so far this year, and are at a record high. January Brent crude on London's ICE Futures exchange rose $0.44 to $46.59 a barrel.

Those new estimates were contained OPEC latest Monthly Oil Market Report. This is a legacy of old disputes over real production levels. The uS price later recovered the $US48 a barrel level in after hours trading. Saudi Arabia is sending strong signals - both publicly and privately - that other nations need to pull up their socks.

OPEC said its production, including Nigeria and Libya, fell by 140,000 bpd in February to 31.96 million bpd, led by a large Saudi cut. The drop from the US$55 range comes after the Riyadh government announced that it will extract more than 10 million barrels per year. And according to the secondary sources, Saudi actually cut output further in February to 9.797 million barrels a day.

"Oil bulls will have breathed a collective sigh of relief yesterday as the stubborn climb of USA crude stockpiles into record territory came to an unexpected halt", said Stephen Brennock, an analyst at PVM Oil Associates Ltd.in London.

  • Todd Kelly