LONDON - Oil's fall further below Saudi Arabia's "fair price" of $75 a barrel will increase pressure on OPEC to set aside any differences and cut supply further when it meets later this month.
The market slid nearly $5 to below $50 a barrel on Monday after OPEC at the weekend deferred a decision amid signs that Riyadh and its Gulf neighbors wanted tighter compliance, especially from Iran and Venezuela, to curbs already in place.
Some members, including Iran and Venezuela, are pushing for a deeper cut when the Organization of the Petroleum Exporting Countries, which pumps 40 percent of the world's oil, meets on December 17 in Oran, Algeria.
Saudi Oil Minister Ali al-Naimi, speaking for OPEC's top exporter, has yet to publicly back another output cut, leaving traders uncertain about Saudi oil policy.
"There's no doubt OPEC needs to take more oil off the market in Oran," said Raja Kiwan, analyst at PFC Energy.
"If Naimi wants to play hard ball with Iran and Venezuela by letting the price fall and stocks build -- King Abdullah's comments have limited his flexibility."
Saudi King Abdullah announced the $75 price in an interview with a Kuwaiti newspaper published on Saturday.
Other OPEC members such as Nigeria and Kuwait are supporting the Saudi view that $75 is fair to both producers and consumers.
Analysts say a real or perceived disagreement over the need to enforce oil supply cuts or deepen them is likely to push prices further below that level in the run up to the group's meeting in Oran.
"It is a very dangerous time for OPEC," said David Hufton at brokers PVM in a report.
"OPEC's indecision has ensured that oil prices will start on the back foot and will struggle to avoid moving back below $50 a barrel and reactivating the downside targets toward $40."
FURTHER ACTION
Many in OPEC, including Secretary-General Abdullah al-Badri, say another reduction in supply is likely.
"We are all geared toward a cut in Algeria ... There will be action there ... It will be a good amount, a good quantity," Badri said on Monday.
"The market is oversupplied because we are seeing stocks as very high."
After OPEC ended its meeting in Cairo on Saturday, delegates said most members, including all Gulf producers, saw the need to chop another 1 to 1.5 million barrels per day (bpd) off output, adding to the total of 2 million bpd agreed since September.
An important barometer of supply for the producer group is the number of days of demand represented by oil stocks held in OECD industrialized countries.
OPEC ministers said they would like to cut inventories to 52 days, down from the current level of 55-56 days of forward demand cover. Analysts see that as unlikely any time soon.
"I do not expect to see that number erode much, mainly as a result of expected downward revisions to the demand forecasts, notably for the United States," said Harry Tchilinguirian, senior analyst at BNP Paribas.
Inventories stood at 2.65 billion barrels at the end of September, according to the International Energy Agency. Given OECD oil demand is 48 million bpd, stocks would need to fall by almost 150 million barrels to reach 52 days.
Tchilinguirian said OPEC would reach its goal of 52 days far more quickly if it cut further in Algeria. Even if OPEC fully implemented its most recent cut of 1.5 million bpd, it would take months to remove the excess supply.
In the end, the goal of pushing prices higher sooner rather than later is likely to unite the 12 exporters.
"OPEC's hand in Oran is being forced toward cutting more oil from the market," said a senior oil executive.
The market slid nearly $5 to below $50 a barrel on Monday after OPEC at the weekend deferred a decision amid signs that Riyadh and its Gulf neighbors wanted tighter compliance, especially from Iran and Venezuela, to curbs already in place.
Some members, including Iran and Venezuela, are pushing for a deeper cut when the Organization of the Petroleum Exporting Countries, which pumps 40 percent of the world's oil, meets on December 17 in Oran, Algeria.
Saudi Oil Minister Ali al-Naimi, speaking for OPEC's top exporter, has yet to publicly back another output cut, leaving traders uncertain about Saudi oil policy.
"There's no doubt OPEC needs to take more oil off the market in Oran," said Raja Kiwan, analyst at PFC Energy.
"If Naimi wants to play hard ball with Iran and Venezuela by letting the price fall and stocks build -- King Abdullah's comments have limited his flexibility."
Saudi King Abdullah announced the $75 price in an interview with a Kuwaiti newspaper published on Saturday.
Other OPEC members such as Nigeria and Kuwait are supporting the Saudi view that $75 is fair to both producers and consumers.
Analysts say a real or perceived disagreement over the need to enforce oil supply cuts or deepen them is likely to push prices further below that level in the run up to the group's meeting in Oran.
"It is a very dangerous time for OPEC," said David Hufton at brokers PVM in a report.
"OPEC's indecision has ensured that oil prices will start on the back foot and will struggle to avoid moving back below $50 a barrel and reactivating the downside targets toward $40."
FURTHER ACTION
Many in OPEC, including Secretary-General Abdullah al-Badri, say another reduction in supply is likely.
"We are all geared toward a cut in Algeria ... There will be action there ... It will be a good amount, a good quantity," Badri said on Monday.
"The market is oversupplied because we are seeing stocks as very high."
After OPEC ended its meeting in Cairo on Saturday, delegates said most members, including all Gulf producers, saw the need to chop another 1 to 1.5 million barrels per day (bpd) off output, adding to the total of 2 million bpd agreed since September.
An important barometer of supply for the producer group is the number of days of demand represented by oil stocks held in OECD industrialized countries.
OPEC ministers said they would like to cut inventories to 52 days, down from the current level of 55-56 days of forward demand cover. Analysts see that as unlikely any time soon.
"I do not expect to see that number erode much, mainly as a result of expected downward revisions to the demand forecasts, notably for the United States," said Harry Tchilinguirian, senior analyst at BNP Paribas.
Inventories stood at 2.65 billion barrels at the end of September, according to the International Energy Agency. Given OECD oil demand is 48 million bpd, stocks would need to fall by almost 150 million barrels to reach 52 days.
Tchilinguirian said OPEC would reach its goal of 52 days far more quickly if it cut further in Algeria. Even if OPEC fully implemented its most recent cut of 1.5 million bpd, it would take months to remove the excess supply.
In the end, the goal of pushing prices higher sooner rather than later is likely to unite the 12 exporters.
"OPEC's hand in Oran is being forced toward cutting more oil from the market," said a senior oil executive.
