Uncertainty about oil output and prices continues to dampen the market as OPEC meets in Cairo, Sherine Nasr
The Organisation of Petroleum Exporting Countries (OPEC) declined to announce further oil output cuts during its extraordinary meeting held in Cairo on Saturday. While weighing the impact of the current global economic crisis, OPEC member states have expressed concern over falling oil demand and agreed to take the necessary measures to restore balance to the market.
A decision to cut down supplies during Cairo's meeting was a far-fetched possibility according to oil expert Amr Kamel Hammouda, who called the gathering a consultative meeting aimed at negotiating means to strike balance to the market and to examine other alternatives.
"OPEC announced a 1.5 million barrel per day (bpd) cut a month ago, which many member states failed to abide by," said Hammouda, adding that some countries even introduced more quotas into the market. This helped further lower the prices and put OPEC's decisions and the extent to which member states are willing to implement them to question. Obviously, some non-Arab member states, such as Iran and Venezuela, whose economies are heavily dependent on oil exports, were the least willing to apply a cut.
In the meantime, the organisation cited $75 per barrel as a fair price. "Eventually, if we want the marginal producer to produce and help the world supply, then we need to give them a better price," the Associated Press quoted Saudi Oil Minister Ali Naimi as saying.
Meanwhile, having too many supplies while failing to find a buyer will probably constitute OPEC's most likely dilemma during next months. For technical as well as political reasons, demand has recently fallen by 1.2 million bpd. "This means that OPEC's latest decision to cut down output did not result in something tangible," said Hammouda, who added that many factors will affect oil prices and demand during the next phase. A deadly slumber in the world economy is foreseen all through 2009 while winter stocks for the next three months are already covered. "These factors may well bring about less demand and more price drops," said Hammouda.
Making the right decision to straighten the market given the present circumstances is apparently a goal beyond the OPEC's capacity. For one thing, the negative impact of the present financial crisis has already been felt by OPEC's largest oil exporter namely, Saudi Arabia, where a gigantic $19 billion worth petrochemical project, built in collaboration with Dow Chemical, has come to a halt. The decision was taken after prospects for finding buyers for the products of this newly established project diminished.
In the meantime, Hammouda believes that the Gulf states have been subject to great pressure exercised by the US as the current situation is dampening. "The US blames part of the present financial situation on the Gulf states for allegedly not investing enough capital in the West," he said.
During the meeting, OPEC's ministers voiced hope that other oil producing countries outside their bloc would be willing to implement more cuts if needed. Russia has already expressed its support of OPEC's efforts to ensure better prices although sticking to a cut down plan, if necessary, remains doubtful.
Notably, well-grounded predictions which sent oil prices to hit the $200 edge by the end of the year evaporated as oil has been losing some $25 each month over the past three months. This week, oil traded at its lowest point since mid-July as light sweet crude for January delivery closed at around $54 a barrel on the New York Mercantile at the beginning of the week. OPEC will have another gathering in Algeria on 17 December, to probe the market for further interventions.