OPEC Sets Emergency Meeting on Output Cuts

Oct 16, 2006 (Dow Jones Newswires from the Wall Street Journal)

The Organization of Petroleum Exporting Countries, hoping to forge an elusive deal to cut oil output and halt a slide in crude-oil prices, said it will hold an emergency meeting in Qatar Thursday.

OPEC has grown alarmed in recent weeks over the sharp decline in oil prices, from a high of about $77 a barrel in July to below $60 last week. Oil ministers have declared that OPEC intends to slash output by one million barrels a day, or about 4%, to prop up prices.

Behind the scenes, the oil czars have failed to nail down the all-important issue of how to allocate the cuts among the membership. Thursday's gathering in Doha -- coming during the Muslim holy month of Ramadan -- is a sign the cartel may be getting closer to putting aside its differences.

Still, one important OPEC country signaled there isn't a deal yet. Late Saturday, an official from the United Arab Emirates oil ministry said discussions were continuing ahead of the meeting. "Consultations continue between member countries," the U.A.E. oil official said. "We have not agreed to a cut in our production yet," the official said.

Qatar's oil minister, Abdullah bin Hamad Al-Attiyah, announced the meeting yesterday, saying representatives will discuss "the current market situation."

Many within OPEC, including the cartel's president, openly say the group has agreed it needs to cut one million barrels a day. Members have been debating whether a cut should come from the group's official output target of 28 million barrels a day, or from its actual output, estimated at 27.5 million barrels a day.

At the heart of the disagreement isn't the size of the cut per se but rather who will bear the burden of reducing output and thus forgoing revenue. OPEC effectively suspended its system of output quotas for each member last month to let countries adjust output on their own to more quickly respond to price movements. Now that members agree a sizable cut is needed, the issue of quotas is coming back to haunt OPEC.

Some members, including Saudi Arabia, Algeria and Libya, have ramped up output in recent years to meet soaring global demand and are producing above old quota levels. If they cut from old quota levels, some would have to make Draconian reductions to output. So, this group wants all members to cut output by a similar percentage from current levels. Others, including Venezuela and Iran, have had their production fall below their old output quotas. They want members who are producing above the old quota levels to cut the most.

Copyright (c) 2006 Dow Jones & Company, Inc.