OPEC Comes Under Pressure as Oil Prices Plummet
For the third time in several months, Organization of Petroleum-Exporting Countries ability to halt plummeting crude costs amongst a global economical meltdown will be examined during a meeting Saturday.
Nevertheless, the consequence of the meeting, called to appraise the affect of earlier output cuts, likely hinges on a key issue with which the Organization of Petroleum Exporting Countries has had a checkered past: unity.
“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 costs have fallen heavily. Call for crude has vaporized amid a global financial avalanche that jeopardizes to cut deeply into the budgets of OPEC member states…
Just four months removed from $147 per-barrel crude, U.S. benchmark West Texas Intermediate crude for January delivery traded at about $53 per barrel Friday.
The cartel, whose next scheduled meeting is on December. 17 in Algeria, called an emergency meeting in Vienna at the end of October and slashed output by 1.5 million barrels a day.
Crude price have fallen 20 percent since then.
Cartel members hurriedly scheduled flights to Cairo where the Organization of Arab Petroleum Exporting Countries was already meeting.
The Algerian oil minister and OPEC president, Chakib Khelil, has suggested the cartel is unlikely to make any production changes, but there is speculation that OPEC’s best chance at halting crude’s steady decline would be a surprise cut.
OPEC’s direction usually comes down to what Saudi Arabia, the oil kingpin and traditional price dove in a group that supplies 40 percent of the world’s crude oil, wants.
The recent price drop has left price hawks Venezuela and Iran clamoring for reductions of at least one million barrels a day. Both countries need crude of about $90 per barrel to meet current budgets aimed in part to support potentially fragile regimes.
They have found an ally in non-OPEC oil giant, Russia. Its president, Dmitry Medvedev, said Thursday that his country would cooperate with the group to support prices.
OPEC members Nigeria and Ecuador, however, are confronting their own budget problems and have been reluctant to make revenue-shrinking production cuts.
That leaves the cartel even more fractured than usual.
The Saudis are better positioned to contend with the drop in prices. The International Monetary Fund estimates Riyadh’s 2008 fiscal accounts will break even with oil around $50 per barrel.
And OPEC faces the danger of making the economic position for its members even worse. A jerk from production cuts has the potential to prolong any global economic downturn.
Demand has shown little denotation of a rebound.
OPEC, along with the International Energy Agency, has significantly revised down its projections for energy demand in 2009.
Meanwhile, global crude inventories are growing, as evidenced by a United States report showing a surprisingly large 7 million barrel build in stocks last week for the world’s largest energy consumer.
OPEC’s last round of cuts would put its total production at about 30.5 million barrels per day, according to the IEA. That is about 500,000 barrels per day higher than the forecast call on OPEC crude in much of 2009.
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