OPEC to Put Shale to the Test by Maintaining Output: IEA

OPEC nations supplying 40 percent of the world’s oil will increasingly test the price at which North America’s surging crude output is profitable by maintaining production as demand slumps, the International Energy Agency said.

The Organization of Petroleum Exporting Countries boosted output by the most in 13 months in September, even as prices plunged into a bear market and demand growth weakens to a five-year low, the Paris-based adviser to governments said in a report today. Both Saudi Arabia and Kuwait, the largest and third-largest members of OPEC, have indicated the price slump doesn’t warrant immediate production cuts, the IEA said.

The U.S. and Canada between them pumped the most crude since at least 1965 last year, according to data from BP Plc. OPEC members will test if that output can be sustained at lower prices, Antoine Halff, head of the IEA’s oil industry and markets division, said by phone from Paris today. For most of the past decade, OPEC would have responded to surpluses by cutting output, Halff said.

“This is a new situation and will likely elicit a new response from OPEC,” he said. “U.S. shale includes different situations, different economics depending on the players. I’m not sure U.S. shale is definitely the highest cost production, I see more pressures in Canada for instance. But we’ll test that.”

Brent crude, a benchmark for more than half the world’s oil, fell as much as 3.1 percent to $86.17 a barrel today, heading for the lowest closing price since November 2010 on the ICE Futures Europe exchange. The OPEC crude basket, made up of the group’s main export grades, fell to $85.93 yesterday, near a four-year low.

Saudi Share

Saudi Arabia has “appeared determined to defend its market share” in Asia, even at the expense of lower prices, the IEA said in a report today. Kuwait’s oil minister said there may be “no room” to restore prices by trimming supply.

Saudi Arabia, Iraq and Iran are offering the biggest discounts to buyers in Asia since at least 2009, amid speculation they are seeking to maintain market share.

Forecast Lowered

Global oil consumption will increase by about 650,000 barrels a day this year to an average 92.7 million a day, according to the IEA, which advises 29 nations on energy policy. The estimate for demand growth is 250,000 barrels a day lower than last month’s forecast, and about half the level the agency projected in June.

OPEC boosted production in September, pumping 30.47 million barrels a day, the most since August 2013, the group said Oct. 10 in its latest monthly Oil Market Report. Saudi Arabia told OPEC it increased output by 107,000 barrels to 9.704 million. The group’s next meeting is scheduled for Nov. 27 in Vienna.

Saudi Arabia, which pumped almost one-third of the group’s output last month, won’t alter its supplies much between now and the end of the year, a person familiar with its policy said on Oct. 3.

Venezuelan President Nicolas Maduro gave instructions to ask for an emergency meeting of OPEC, the country’s foreign ministry said in a post on its Twitter account on Oct. 10.

No Meetings

Kuwait hasn’t received an invitation to hold an emergency session to consider cutting output, the country’s Oil Minister Ali Al-Omair told the official Kuwait News Agency. Youcef Yousfi, Algeria’s energy minister, said Oct. 12 his government is “tranquil” about prices.

While oil-producing nations would prefer higher prices, there’s no scope for them to cut supply to achieve that, Al-Omair said.

“They’ve not come out and said ‘we will do what it takes to balance the market’,” said Mike Wittner, head of oil market research at Societe Generale SA in New York. “Right now the economy is weak, and demand is weak in Europe and China. The market wants to see something fairly dramatic.”

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