OPEC oil ministers on Friday downplayed expectations of, but didn't
dismiss outright, an immediate output cut as they faced a third test in
as many months of their ability to engineer a rebound in oil prices.
The outcome of the hastily convened Cairo meeting Saturday, billed
as a consultative gathering to assess the impact of earlier production
cuts, likely hinges on a key issue with which the cartel has had a
checkered past: unity.
Kuwaiti oil minister Mohammed Al-Aleem told reporters in Cairo that
while the market was oversupplied, he believed there was "no need" for
the Organization of Petroleum Exporting Countries to decide on cuts ahead of its regularly scheduled Dec. 17 meeting in Algeria.
But Rafael Ramirez, oil minister for price hawk Venezuela, later
said the option remained to cut production by "at least 1 million
barrels" at the weekend gathering. "Maybe it's necessary, a new cut,"
Ramirez said. He quickly added, thought, that such a decision could be
taken now or next month.
The diverging takes highlighted the difficulty of the task facing producers of almost 40 percent of the world's oil.
"There is total confusion" among OPEC's 13 members, said Fadel
Gheit, managing director of oil and gas research at Oppenheimer &
Co. in New York. "These people ... really have no business model. They
basically thrive when oil prices go up, and now they are crying uncle
when prices go down."
And, down they have gone, in a financial avalanche triggered by
demand destruction, itself sped along by a world financial meltdown
that also threatens to cut deeply into OPEC member states' government
budgets.
Whereas crude stood at about $147 a barrel in mid-July, it now
hovers about $90 lower. On Friday, the U.S. benchmark West Texas
Intermediate crude for January delivery was trading at down about $3
per barrel at about $51.
"They (OPEC) simply don't react quick enough, and prices keep going
down," said Vincent Lauerman, OPEC expert and president of Calgary,
Canada-based consultancy Geopolitics Central.
This meeting will come down to what kingpin and traditional price dove Saudi Arabia wants, he said.
Saudi oil minister Ali al-Naimi told reporters answers would come on Saturday.
The cartel has already held one emergency meeting - on Oct. 24 in
Vienna - to try to halt the slide in prices with an announcement of a
1.5 million barrel per day drop.
It failed to support prices, and the cartel cobbled together the
Cairo gathering on the sidelines of the Organization of Arab Petroleum
Exporting Countries' meeting.
But members have been circumspect about expectations, leading some
to speculate OPEC is staying quiet to maintain the element of surprise.
"As long as they do a substantive cut, they may be getting ahead of
the curve, and should be cutting enough to get ahead of demand
destruction," said Lauerman, citing about 1 to 1.2 million as the magic
number.
That has been the figure most readily cited by those nations
proposing cuts, including Venezuela which, like fellow price hawk Iran,
need crude of about $90 per barrel to meet current spending needs aimed
in part at propping up its domestically unpopular regime.
The two have found support from non-OPEC oil giant, Russia. Its
president, Dmitry Medvedev, said Thursday his country would cooperate
with the group to support prices.
Other OPEC members, such as Nigeria and Ecuador, face budget
problems too, making them reluctant to implement more cuts that might
shrink revenues further.
Nigerian envoy, Odein Ajumogobia, said the ministers were "just going to exchange ideas and views" at the gathering.
Kuwait's al-Aleem said current low prices benefit neither consumers
nor producers and could undercut investments in future projects - a
scenario that could lead to another spike down the road.
"We think a decision could be taken, but I think it will happen in Algeria," he said.
OPEC's last round of cuts would put its total production at about 30.5 million barrels per day, according to the IEA.
Unlike many of their fellow members, the Saudis are better
positioned to cope with the drop in prices. The International Monetary
Fund estimates Riyadh needs crude in the range of about $50 per barrel
for 2008 fiscal accounts to break even.
While al-Naimi refused to tip his hand, an indication of the Saudi
thinking may have emerged earlier this month when, during the Group of
20 meeting in Washington, King Abdullah pledged the kingdom would do
everything in its power to help the global economy recover.
Higher oil prices would undermine that promise.
Also unclear, after two earlier cuts failed to push prices higher,
is what the group can do without prolonging the global economic
downturn.
"I would play 'good cop' and not do anything," said Oppenheimer's
Gheit. "If they are patient, they will be rewarded because you will see
a precipitous drop in capital spending, and that will tighten the market, in itself."
But demand has shown little indication of rebounding soon, and
global crude stockpiles are growing - as evidenced by a U.S. government
report showing a surprisingly large 7 million barrel build in stocks
last week.
Those factors argue against restraint if some in OPEC want crude back up to at least $70.
Even so, Algerian oil minister and OPEC president Chakib Khelil has
urged a wait-and-see approach, saying that the group risks losing
credibility if it enacts new cuts in Cairo only to find members were
not complying with the Vienna decision.
Political considerations are also likely to factor prominently.
Saudi Arabia is a close U.S. ally in the Middle East, and is eager to see concerted Washington backing for peace efforts in the region.
One way of winning new support from the incoming administration of
U.S. President-elect Barack Obama would be by tacitly working to
undercut two of Washington's most strident foes, Venezuela and Iran. It
would not be an onerous job for the Sunni Muslim Saudis, who have no
great affection for Shiite Iran.
"Saudi Arabia is playing ball with the U.S.," said Gheit. "It is
going to punish Venezuela. It is going to punish Russia. It is also
going to curtail Iran."
AP Business Writer Adam Schreck contributed to this report.
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