Oil prices rose slightly in the second week of October, as the market waited for clarity on OPEC's intentions and North Korea's nuclear test ratcheted up global political tension. However, the underlying conditions remain bearish, with inventories above the seasonal average. Spot Brent was trading at $57.11 a barrel on 11 October, compared with $56.06 a barrel a week earlier.
OPEC President and Nigerian Minister of State for Petroleum Resources Edmund Daukoru on 8 October called on members to implement an immediate 1 million-barrel-a-day (b/d) cut in production to halt the recent slide in prices which were close to $80 a barrel in August. Abuja and traditional hawk Caracas have already pledged to take off a combined 170,000 b/d and Algeria has voiced support. 'What is important is that the market finds the OPEC position credible,' said Algerian Energy Minister Chakib Khelil on 8 October. 'That would send a clear signal that OPEC means business.' However, the key problem with the credibility of the cut as MEED went to press was uncertainty as to whether Riyadh was on board. An official statement had yet to be made and empirical evidence pointed in contradictory directions: reports that formula prices had been increased traditionally the kingdom's means of cutting output were balanced by news that Asian and European customers had been informed that November volumes would be unchanged. Talk has centred on Saudi Arabia shouldering about 300,000 b/d of a group production cut, with Iran, Kuwait and the UAE each shaving off about 100,000 b/d. 'We accept to cut production depending on market needs, in order to safeguard the stability of the market,' Kuwait's Energy Minister Sheikh Ali al-Jarrah al-Sabah told reporters on 9 October. An extraordinary OPEC meeting in Vienna on 18-19 October to reach a more formal consensus is being mooted. In the interim, the market is sceptical hence the lack of any dramatic rise in prices. 'If OPEC does cut, it has to be semi-informal and not pro rata according to individual quotas, which have become meaningless,' says Geoff Pyne, analyst at ABN Amro. 'But I think there is the will actually to cut production they are not simply sending a signal. All members will be scared by the speed of the price fall and the growth in inventories. Saudi Arabia's concern appears less to keep prices high than to keep them stable, so the speed of the price move will be alarming.' Bearish fundamentals look set to stay in place. US inventories have been gradually rising and the American market is in the midst of a period of weaker demand between the summer driving season and the northern hemisphere winter.