OPEC Needs To Cut Production To Prevent Falling Oil Prices: National Bank Of Kuwait

 @David_Kashi
on July 22 2013 10:17 AM
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    Traders on floor of the New York Mercantile Exchange Reuters
  • The logo of the Organization of the Petroleum Exporting Countries (OPEC) is pictured on the wall of the new OPEC headquarters in Vienna
    The Organization of Petroleum Exporting Countries (OPEC) has pledged to make as much as 6 million barrels per day of surplus crude production capacity available in the event of a strong rise in demand or sudden disruption in supply, a Platts release said on Tuesday. REUTERS
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The Organization of Petroleum Exporting Countries (OPEC) needs to cut its crude oil production later this year in order to prevent sharp price drops, a report by Kuwait’s leading bank said.

The National Bank of Kuwait said that “to prevent prices from falling too far below the organization's unofficial $100/barrel target level,” production had to be cut. The bank did not specify how much production needed to be cut or how much oil prices would fall if OPEC did not act.

The bank laid out several price scenarios based on modest demand growth and increased output by non-OPEC countries. 

The first scenario for the rest of 2013 would have non-OPEC countries increasing production by 1.3 million barrels of oil per day. Under such circumstances, the bank sees the price of Kuwait export crude falling to about $100 a barrel from its current $105.

The bank's second price scenario entails non-OPEC production rising by 1.5 million barrels of oil per day, under which circumstances the bank sees the price of Kuwait export crude falling to $90 a barrel in early 2014.  

An increase in oil prices in July, the bank said, was due to higher-than-expected seasonal demand, including the summer driving season in the U.S. as well as an increase in the Middle East power sector’s demand for oil during the air-conditioning season. 

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