OPEC assessing oil output cuts
Earlier efforts failed to stem price drop
CAIRO, Egypt – 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, 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.
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 today.
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,” Lauerman said, citing about 1 to 1.2 million as the magic number.