US oil falls below $40 ahead of OPEC meeting

AP PHOTO

VIENNA, Austria — Oil slumped below $40 a barrel Wednesday on persistent concerns over a global supply glut, heaping more pressure on OPEC to cut output at its upcoming meeting in the Austrian capital.

US benchmark West Texas Intermediate for delivery in January tumbled $1.91 to close at $39.94 a barrel — the first time it has ended under $40 since late August.

In London, Brent North Sea crude for January declined $1.95 to $42.49 a barrel.

World oil prices have fallen by more than 60 percent in value since June last year on high supplies, weak demand growth and a strong dollar.

The trigger for the latest slide was official data showing that stockpiles of US commercial crude rose by 1.2 million barrels last week.

“I’m not happy with the oil prices,” Iraq’s oil minister Adil Abd Al-Mahdi told reporters on arrival in Vienna, cautioning however that no agreement had been reached on output ahead of Friday’s meeting.

“We will wait and see,” he said.

Alongside a formal decision on production due Friday, the Organization of the Petroleum Exporting Countries is set to approve Indonesia’s return as a member.

Analysts expect OPEC — whose 12 member nations from the Middle East, Africa and Latin America pump out about one third of the world’s oil — to leave its daily oil output target at 30 million barrels.

Nevertheless, it may agree to trim excess production in a bid to support prices and in turn producers’ revenues.

According to a survey by Bloomberg, OPEC production in November rose to 32.12 million barrels per day.

“We will discuss… and then decide” on output, Saudi Oil Minister Ali al-Naimi said Tuesday in Vienna, home to OPEC’s headquarters.

At its last regular meeting in June, OPEC defied calls to cut output despite the low oil price, extending what is now a year-long strategy of attempting to preserve market share and fend off competition from oil extracted from North American shale rock.

A world leader in crude oil production along with non-OPEC countries Russia and the United States, Saudi Arabia holds significant influence over the cartel’s other 11 members.

But the policy of maintaining high output has contributed to prices slumping from above $100 a barrel in mid-2014.

This has caused much friction within OPEC, with poorer members such as Venezuela suffering badly from a collapse in income.

“The pressure is growing on Saudi Arabia to cut production after it convinced the cartel to keep oil output high in order to maintain market share and presumably squeeze shale and other weaker producers out of the market,” noted Fawad Razaqzada, oil market analyst at Gain Capital trading group.

Weak demand

The price situation could worsen next year, when growth in global demand for crude is set to slow as the allure of cheap oil fades, the International Energy Agency said last month.

Demand is being impacted also by slowing economic output in China, the world’s biggest consumer of energy.

Further downward pressure on oil prices is expected to come from OPEC member Iran ramping up exports as sanctions are lifted as part of July’s nuclear deal with major powers.

In addition, an expected rise in US interest rates later this month may boost the dollar and make oil priced in the US currency more expensive for holders of rival units, further denting demand.

OPEC will also approve Indonesia’s return to the organization following a six-year absence that had been triggered by southeast Asia’s largest economy becoming a net importer of oil.

Its return is seen as a way for the resource-rich country to access cheaper oil supplies as local demand soars while domestic production falls.