Oil services sector to be hit as Opec holds firm on output

Prices immediately hit as oil producers’ group says it will maintain current production levels, LeAnne Graves reports.

Nigeria's minister of state for Petroleum Resources and president of the Opec Conference Emmanuel Ibe Kachikwu, left, and Opec's secretary general Abdalla Salem El-Badri of Libya attend a news conference after a meeting of Opec at their headquarters in Vienna on Friday. Ronald Zak / AP PhotoShow less

Paris // Opec will not risk its market share and further disruption to oil markets, an analyst said after it maintained output despite a 35 per cent slump in crude prices this year.

The oil-producing group met in Vienna on Friday and announced that its members would keep production levels of about 31.5 million barrels per day, sending the price of Brent crude down nearly 2.5 per cent to US$43 per barrel.

“If they all agreed to a quota, that would mean more pressure on the market and would also indicate no future cut [in production] next year, ” said Alexandre Andlauer, a ­Paris-based oil and gas analyst at AlphaValue.

He said that he felt that some Opec members did not want to act because it would upset the market further.

“However, it could mean that Opec will cut production next year either at its meeting in June or more likely, December,” said Mr Andlauer.

The UAE energy minister Suhail Al Mazrouei said after the meeting that Opec would not work against its customers.

“We are not going to go back to a cartel and work against the customers,” he said in Vienna. “That time has passed; we are always going to work with the customers”

Opec remains firm in placing pressure on non-members to cut production.

“[Opec] agreed that member countries should continue to closely monitor developments in the coming months,” the group said in a statement.

Non-Opec supply is expected to decrease next year, while global demand is anticipated to expand by 1.3 million barrels per day, according to Opec.

Mr Andlauer said that Iraq, Mexico and Russia could increase production to offset the decrease in shale from North America, as only a couple of shale players can remain profitable with oil prices hovering at $40 per barrel.

Another key issue resulting from this decision will be a continued downturn in investment, which the analyst said could include a further 8 to 10 per cent drop. And this will signal further job cuts in the next six months, with the oil services sector leading the way.

Larger oil companies have so far cut about 5 to 10 per cent of staff, according Mr Andlauer. “It takes more time for larger companies because they have less urgency than the oil services sector.”

He said that most companies bet on around $60 per barrel for oil prices, and as long as the prices remain well below that, the stress on the market will continue and in the upcoming weeks there will be an acceleration in layoffs if oil prices do not rebound. “Even if the prices rebound though, there will still be layoffs,” he said.

“And $40 a barrel is not good, even for the Saudis,” the analyst added.

Meanwhile, the Paris climate talks are taking place with fossil fuel divestment pledges increasing almost sevenfold in three months. More than 500 global organisations, representing over $3.4 trillion in assets, made fossil fuel divestment pledges last week. This is after commitments from companies representing $50 billion in assets in September.

* With Bloomberg