Market and marginal fields will dictate oil price, says Adnoc official

Oil has shed about 40 per cent of its value to less than $70 a barrel from around $115 reached in June.

Oil prices have taken a deeper plunge since Opec, the producer of about a third of world’s oil supply, decided to keep its production ceiling unchanged at 30 million barrels per day last month. Jeff Topping / The NationalShow less

Marginal fields and market fundamentals will determine the future oil price, an official from the state-run Abu Dhabi National Oil Company (Adnoc) said on Tuesday.

Oil has shed about 40 per cent of its value to less than $70 a barrel from around $115 in June.

“The market will dictate the fair price, the future price is going to be set by supply and demand,” Mubarak Al Ketbi, Adnoc’s deputy director of the marketing and refining directorate told the Platts Middle East Crude Oil Summit in Dubai. “I think the marginal fields are going to set the price.”

Marginal fields usually refer to fields with high-cost production and technical constraints, which applies to unconventional oil production such as shale.

Brent oil fell more than 4 per cent in early trading on Tuesday, plunging below $66 a barrel owing to concerns about oil oversupply, anaemic economic growth in Europe and Japan, and also owing to a strengthening dollar.

Prices have taken a deeper plunge since Opec, the producer of about a third of world’s oil supply, decided to keep its production ceiling unchanged at 30 million barrels per day (bpd) of oil at a Vienna meeting on November 27. The oil cartel, which meets next June, last cut production in 2008 by 4.2 million bpd amid the global economic slowdown.

Gulf countries within Opec, including the UAE, are defending their market share and have abandoned their previous policy of supporting oil prices, analysts have said. Their views collided with other Opec members such as Venezuela, which had wanted an oil supply cut to shore up prices.

“Right now Opec is dysfunctional,” said Johannes Benigni, director of the Singapore-based energy consultancy JBC Asia.

“They will have to allocate individual quotas to members.’’

Saudi Arabia, the world’s biggest oil exporter, cut its oil price to Asia and the United States this month, a move that is expected to help it defend its market share in these key markets. Iraq followed suit and cut its price for Asia.

“It’s a two-tier Opec,” said Amrita Sen, chief oil analyst at the UK-based energy market consultancy Energy Aspects. “It is simply the inability of Opec to come to a conclusion by bringing the divergent views together.”

The drop in the oil price, which Energy Aspects has forecast to average $71 a barrel in the first quarter of next year, is likely to lead to projects being delayed or mothballed, she said.

Despite the forecast drop in oil prices, the UAE is forging ahead with boosting its oil output capacity to 3.5 million bpd by 2017 from about the current 3 million bpd, said Ahmed Al Kaabi, director of the petroleum economics department at the Ministry of Energy.

The UAE’s refining capacity is also set to rise to more than 1 million bpd when the $10 billion extension of Ruwais refinery is fully commissioned. The refinery, located west of Abu Dhabi city, will nearly double output from the current 415,000 bpd. The expansion will allow the UAE to become self-sufficient in terms of oil products such as petrol and jet fuel, Adnoc’s Mr Al Ketbi said.

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