Oil prices dip under $18 per barrel

Oil prices dip under $18 per barrel

Reuters, London

Oil prices were hovering around two-year lows on Thursday after OPEC raised the stakes in a game of high risk poker with rival oil producers.

In the opening salvo of what industry analysts said could turn into an ugly oil price war OPEC ministers agreed to cut out put by 1.5 million barrels per day.

But they said they would defer implementing the lower limits until Jan. 1 "subject to a firm commitment from non-OPEC oil producers to cut their production by a volume of 500,000 bpd simultaneously".

"We are trying to give them a generous offer and if I were in their shoes I would take this offer," said Qatari Oil Minister Abdullah al-Attiyah.

Brent crude futures were down 25 cents at US$18.50 a barrel at 1043 GMT (5.43 p.m. Jakarta time) having dipped below $18 a few minutes after trading began.

"This is an offer or perhaps even a threat. It doesn't really feel like an OPEC agreement because it depends on countries outside of the cartel," said Glen Murray of oil brokers Azure in France.

"It seems to be a matter of who blinks first".

"This appears to be a big bet that non-OPEC will come to the party and cut production rather than face their revenues being crushed by falling prices," said Simon Games-Thomas at NM Rothschild & Sons in Sydney.

Analysts say the declining trend in the oil price could make Indonesia unable to meet its oil revenue target this year and next year. Indonesia has targeted Rp 100 trillion (US$9.4 billion) in oil and gas revenue this year and Rp 66.1 trillion next year with the oil price assumption of $24 per barrel this year and $22 per barrel next year.

OPEC wants to curb world supplies to lift prices back into a $22 to $28 a barrel band, but has become increasingly frustrated with the lack of backing from non-cartel producers after it made three output cuts this year totaling 3.5 million bpd.

It says non-members, which have been increasing output, should shoulder some of the burden of propping up prices by managing supply to demand, a strategy that has served the cartel well in the last two years.

Saudi Arabian Oil Minister Ali al-Naimi said on Thursday that OPEC will never cut production unless Russia contributes significant supply curbs to support the cartel's efforts to stabilize the oil markets.

Asked whether OPEC's would still cut even without a deeper cut commitment from Russia, Naimi replied: "Absolutely not, so we all lose."

"Russia's cut is minuscule and disappointing and we don't take it seriously," Naimi told a news briefing.

"We've made a very, very reasonable request, Russia's position is extremely unreasonable. We're in a crisis mode -- the biggest losers will be Russia and Saudi Arabia," the minister said.

But he stressed "this is not a price war and its not a grab for market share".

Russian Finance Minister Alexei Kudrin said on Thursday he hoped his country, under intense pressure from OPEC to cut exports and output to support crude prices, would be able to work out a deal with the oil cartel.

Russian Deputy Prime Minister Viktor Khristenko, who coordinates the government's work with the country's mostly privately-owned oil companies, saw a chance for talks with OPEC.

"We have not excluded and have never broken off the system of consultations with OPEC member states about a stable oil market," Khristenko told reporters in Azeri capital Baku.