No matter what actions the U.S. takes to lessen its oil production, and there have been several of late, its stockpiles of crude oil refuse to diminish, preventing oil prices from turning around.
Oil fell to under $49 per barrel on Thursday, after reports of existing U.S. accumulations were announced the day before. Data from the American Petroleum Institute showed U.S. crude stocks rose by 9.4 million barrels in the week to Oct. 9 to 465.96 million; analysts had forecast a 2.8 million barrels increase. Data from the government Energy Information Administration has not come out yet at the time of this writing but a poll of nine analysts predicted a crude stock buildup of 2.9 million barrels on average during the week that ended on Oct. 9.
Governments Step in
Countries worldwide are eager to prevent oil prices from dropping further and are trying to implement measures that would help salvage the situation. In September, the Venezuelan government set out a proposal for a summit between OPEC and non-OPEC producers which it believes should focus on bolstering oil prices rather than limiting volumes.
Countries worldwide are eager to prevent oil prices from dropping further and are trying to implement measures that would help salvage the situation.
Venezuelan President Nicolas Maduro at the time suggested that the minimum price should be $70 a barrel which would “guarantee investments needed for global energy and economic stability.” His proposal seems simple enough. Cut production progressively to control prices, with a "first floor" of $70 per barrel and a later target of $100 per barrel.
Saudi Arabia last November was in the forefront of OPEC’s decision not to reduce output but rather to compete for market share against U.S. shale producers and this has brought oil prices in New York and London to a six-year low due to excess global supply.
A Reuter’s report Thursday indicated that Venezuela’s plan to keep the $70 price floor would falter before it even got off the ground.
According to the Reuter report, the world's big oil exporters pumped more than half a billion barrels more crude than needed in the first nine months of this year while China's crude imports rose 8.8 percent to 248.62 million tons, which some traders said had provided support to the market.
Saudi Arabia, OPEC’s de facto leader, has shown no interest in returning to a strategy of supporting prices and big producers outside the Organization of Petroleum Exporting Countries, primarily Russia, have basically ruled out any cuts.
$70-$100 Range Not Possible
Most analysts believe that the $70 price is unsustainable or that any attempt to set a price range is pointless, or they hold both views. There are, however, some experts who feel that the plan may indeed set forth a direction for moving away from OPEC's lenient approach to crumbling oil prices, which have thwarted investment and have left some economies, such as Venezuela's, in a struggling financial situation.
Whether or not the proposal is introduced, it is seen by economists as a meaningful attempt to stem the tide of dropping oil prices. The plan will be discussed at an Oct. 21 meeting of technical experts in Vienna and eight non-OPEC countries were invited--Azerbaijan, Brazil, Colombia, Kazakhstan, Norway, Mexico, Oman and Russia.
The Organization of the Petroleum Exporting Countries meets in December. The producer group is expected to maintain its policy of holding down the market share, underlined by Saudi Arabia's push into Russia's regional market.
Venezuela has made several attempts in past years to make OPEC go back to a fixed range of prices and they have all failed. This year prices are lower, but big producers - including Saudi Arabia and Kuwait - are disinclined to sacrifice their market share once again.