Oil prices fall as OPEC seen keeping production high

Vehicles are seen in queues as drivers wait to fill their tanks at a Sinopec gas station in Zhengzhou, Henan province 9 February – Reuters

LONDON (Reuters): Oil prices fell for a third day in a row on Friday as OPEC ministers met in Vienna for a policy meeting that was expected to keep oil production unrestrained for the next six months, feeding a huge global oversupply.

The most powerful members of the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, are focusing on market share rather than adjusting production to support prices, a policy that has weakened the market.

Speaking on his way into Friday’s ministerial meeting, Saudi Arabia’s oil minister Ali al-Naimi said oil production was “a sovereign right” and oil producers were “free to do what they want”.

“It is a free market, everyone is free to produce as much as he wants,” Naimi said.

Naimi was earlier quoted by the Saudi-owned al-Hayat newspaper as saying oil demand was increasing and supply from outside OPEC had declined:

“I am 100% comfortable with the oil market situation,” Naimi told al-Hayat.

Brent crude oil for July was down 40 cents a barrel at $61.63 by 0855 GMT. US crude futures were down 50 cents at $57.50.

“Oil prices are looking a bit softer,” said Michael Hewson, chief market analyst at CMC Markets UK. “There is a good chance we can see an increase to production” (from OPEC). “I think best case scenario is that the status quo to be continued,” Hewson added.

Oil prices tumbled 5% in the previous two sessions as investors expected world oversupply to continue.

With oil prices having rebounded by more than a third after hitting a six-year low of $45 a barrel in January, OPEC officials in Vienna see little reason to tinker with what they see as a successful production strategy.

Lower oil prices have helped support growth in fuel consumption and put a damper on the US shale boom.

Oil trader Andy Hall expects US crude prices to rise above $65 a barrel despite the high global production of oil, citing the drop in the US oil rig count as a factor.

“Despite a collapse in rig counts in the US, oil production has yet to register a sustained decline. But it will come,” Hall said in a monthly letter to investors in his $3.3 billion Connecticut-based hedge fund Astenbeck Capital Management.