LONDON (Dow Jones Newswires), November 26, 2008
Despite oil prices' nosedive by nearly $100 a barrel since July, nervous OPEC members gathering in Cairo later this week appear likely to defer another oil-output decision until December so they can gauge the impact of two previous cuts.
Worried by the sinking demand and rising storage levels that helped to tip oil prices below $50 a barrel in the last week, the Organization of Petroleum Exporting Countries has hastily arranged to meet Saturday in Egypt for consultations. The meeting coincides with a previously planned meeting of Arab oil-producing countries.
OPEC members are assembling as the organization struggles to stop oil prices from plunging further amid widening global economic turmoil. OPEC members have a mixed record of trying to halt falling prices by cutting supply, especially when facing a recession.
All OPEC members are expected to attend the Cairo meeting, where the group will review the current oil-market environment and evidence of its adherence to already-agreed production cuts.
OPEC President Chakib Khelil said Monday, however, that OPEC most likely would suspend any further output adjustments until its next formal meeting, set for Dec. 17 in Oran, Algeria.
"OPEC members will not take a hasty decision," said Sadad Al-Husseini, a former executive of Saudi Arabian Oil Co., or Saudi Aramco. "They will review the situation and prepare for their Oran meeting."
OPEC President Khelil said, "The Cairo meeting will see consultations only ... but there's no set agenda."
Data show "compliance with the cut has been excellent so far," Khelil said.
The OPEC president also said, however, "Not enough information is available to make a decision, but if there were a meeting today a 1-million-barrel-a-day cut wouldn't be enough."
Tanker tracker Petrologistics said Friday that OPEC members subject to quotas have removed more than 1 million barrels a day from global markets in the past month.
Venezuela and Iran are calling on OPEC to swiftly reduce production again by at least 1 million barrels a day, only a month after the organization agreed to cut output by 1.5 million barrels a day. That output cut followed another OPEC move in September to reduce its supply by about 500,000 barrels a day.
Libya also has said OPEC can't rule out the possibility of agreeing to a new production cut this week when members gather in Cairo. Shokri Ghanem, head of the Libyan National Oil Co., told Dow Jones Tuesday, "We cannot tell if there will be a cut or not."
Despite two OPEC cuts in as many months, oil prices have continued their downward spiral. Last week, they plunged below the $50 per barrel mark for the first time in more than three years.
Dwindling demand for petroleum has driven oil prices lower as consuming nations such as the United States and United Kingdom slide into economic recession, spurred by a collapse of consumer confidence and financial-industry troubles.
Tuesday, the Organization for Economic Cooperation and Development, which represents the world's most industrialized countries, said combined gross domestic product of its 30 members is expected to fall 0.4% next year.
Oil prices have slightly recovered this week, with New York Mercantile Exchange oil futures trading up about 3.2% on the day at $52.41 a barrel at 1431 GMT Wednesday.
But the slide in oil prices since July has prompted Deutsche Bank AG, Goldman Sachs Inc. and Citigroup to downgrade their oil-price forecasts.
Citigroup now says a barrel of oil will average $65 in 2009. But even oil prices at that level would be unacceptable for OPEC members Algeria, Angola and Nigeria. These members are reluctant to reduce oil output again soon and have said they consider $70 a barrel to be the minimum acceptable oil price.
Various downward forecast revisions for 2008-2009 consumption suggest that falling oil prices have failed to shore up oil demand.
The International Energy Agency, which coordinates energy policy for many industrialized nations, this month slashed its forecasts for 2008 global oil demand by 330,000 barrels from the 2008 demand estimate in its October report.
The IEA even made its first substantial downward revision for 2009 oil demand in China and other emerging markets, which it had previously considered the most stable source of oil consumption growth.
Looking ahead, OPEC expects consumption of its oil will decline by 910,000 barrels a day next year to 30.9 million barrels a day. That's a downward revision of 40,000 barrels a day from the 2009 forecast in its October report.
As widening global economic turmoil crimps oil demand, OPEC members also worry oil inventories will rise - even during the Northern Hemisphere's winter heating season, which ordinarily lifts demand and draws down key consumers' petroleum storage.
The International Energy Agency said in its latest report that oil inventories in the U.S. and other industrialized nations during September stood at 55 days of forward demand cover - already well above the 10-year-average level.
"The big concern in OPEC is that inventory number," a person familiar with OPEC's thinking said after the IEA stocks figures were released. If OPEC "can take care of that, prices may follow and rise. But it is difficult because of the demand environment."
OPEC would like to see its own output cuts met by similar reductions from non-OPEC oil exporters. When it meets Saturday in Cairo, the group may discuss prospects for such cooperation with exporters including Russia, the world's largest non-OPEC oil producer.
At OPEC's September meeting in Vienna, Russian delegates pledged closer cooperation with the group. Russia renewed that pledge this week.
"Russia will actively cooperate with OPEC; we will be coordinating our activities to defend our interests," Russian energy minister Sergey Shmatko said Tuesday. "We want to work out and understand a production mechanism."
An OPEC delegate said, however, that Russia was not expected to be represented at the Cairo meeting.
Copyright (c) 2008 Dow Jones & Company, Inc.
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