Saudi Arabia and Iran, two of the
world's biggest oil producers, on Monday put a brave face on the
sharp price slump and vowed to keep a tight rein on production
until high stockpiles are depleted.
The two OPEC powers said separately that last week's selloff was
driven by speculation, not market fundamentals, which they said
For the first time, Saudi Arabia joined a growing list of
major oil producers who left open the possibility of extending a
production cut pact beyond its March expiry if the glut had not
"Saudi Arabia thinks the cuts should continue until March
and even after that the possibility of an extension is there,"
a Gulf source close to oil policy in Saudi Arabia, the world's
biggest oil producer and exporter, told Reuters.
The supply restraints have rescued the global oil market
from last year's crisis when crude prices fell below $10 a
barrel. But after more than doubling since the March cut
agreement, prices took a big hit last week after reports that
OPEC production was rising.
Oil plunged $3.60 a barrel last week just days after hitting
a 33-month high. Some traders attributed the selloff to
speculators rushing to liquidate long (overbought) positions
amid doubts about OPEC production discipline.
The fall presented oil producers with their toughest
challenge since the March agreement to cut production by more
than two million barrels per day (bpd) and refocused the
spotlight on their resolve.
Iran, OPEC's second largest producer, said that the cartel
would maintain at least 90 percent compliance with the
"Compliance has been above 90 percent over the last four
months and it will remain at this high level," Iran's OPEC
governor, Hossein Kazempour Ardebili, told Reuters by telephone.
Ardebili said OPEC production curbs were designed to drain
two million bpd in stocks in the fourth quarter of this year and
three million in the first quarter of 2000.
"This is our aim and we are confident this will happen.
This drawdown will get prices to a stable level. Otherwise
prices will remain volatile," said Ardebili, senior adviser to
Iranian Oil Minister Bijan Zanganeh.
IEA Sees Stubborn Stock Levels
The comments came just before the International Energy
Agency (IEA) said oil stocks in key consuming countries fell
only slightly in August and may have actually risen in the third
quarter as a whole despite OPEC production curbs.
That contrasted to expectations that OPEC restraint and a
sluggish non-OPEC supply response would tighten the balance of
supply and demand and lead to a drawdown in stocks.
The IEA also presented a bearish view on OPEC's oil output
in September, saying it rose and reduced the cartel's compliance
with the self-imposed supply curbs.
Saudi Arabia had a more optimistic view of output cut
compliance and stock levels.
"Saudi Arabia believes strongly that compliance is still
high," the Gulf source said.
"The stock levels have started to go down. In some areas
they are uneven but are going down gradually. There is no doubt
it is going down," he added.
Asked what would push OPEC to keep the supply curbs in place
after they expire in March, the Gulf source added: "It has to
do with the price at the time, stock levels and the supply and
demand picture for next year."