OPEC Loses Its Muscle
Despite its bluster almost cutting production, the cartel has been unable to marshal its members to halt oil’s sliding price
By Stanley Reed
Saudi Arabia: The Gulf states have different needs than Iran and Venezuela Ali Jarekji/Reuters
OPEC’s oil chiefs were within a little begging to be taken seriously on the day of their conference in Oran, Algeria. When Saudi Oil Minister Ali al-Naimi arrived at the Sheraton, a proud glass-and-steel building in the hills above the city, he told the abeyance scrum of reporters that OPEC planned to cut production by a big number. Sure enough, on Dec. 17, OPEC announced cuts that amounted to 2.2 million barrels a day. Unimpressed, the mart for uncooked drifted lower, to around $40.
This was the fourth conflux of OPEC since September. Two of them were hastily convened emergency sessions. Before Oran, the organization had announced 2 million barrels in cuts over the last three months. None of this has been enough to oppose a plunge from the July peak of $147 for barrel. Despite the big cuts of Dec. 17, OPEC’sitting hopes are modest. Its target may be $75 a barrel, but a delegate from the Gulf doubted the price would exceed $55 in the first moiety of 2009. “OPEC is turning into an increasingly irrelevant organization,” related Sanford C. Bernstein analyst Neil McMahon on a newly come conference muster.
Why is OPEC’s reputation taking of the like kind a hit? The market views it to the degree that having let things get out of curb when prices were surging. Now the cartel can’t seem to contain a downward slide, either. “I don’t think they even have compliance on [the cuts] they’ve already done,” says John Hall, a London-based analyst attending the conference. OPEC adopts production quotas towards eddish. of its members, but it rarely adheres to them. OPEC delegates reckon the 1.5 million- barrel-per-day cut announced in October reduced prolongation through only 1 million barrels—nearly all of it from Saudi Arabia.
The condition recalls the late 1990s whereas a splenetic OPEC watched prices hit record lows. Today the organization is trying to attentive a united front, if it be not that profound differences exist. On the one handwriting are the Saudis and other Persian Gulf states. They are the only countries with enough production capacity to make big cuts. Yet they don’t want to inflict further damage on the global economy by forcing prices too high. Then there are the hardliners partiality Iran and Venezuela that want sharply higher prices to support their social programs. Crude prices are well below the $100 per barrel and $86 per barrel Venezuela and Iran privation to be a good investment their bills, according to Washington consultant PFC Energy.
As OPEC strives to retain its clout, a glut is emerging that could ride prices even lower. Off Iran’s Kharg Island oil terminating are seven supertankers laden with Iranian crude. Iran is storing oil on board in hopes of higher prices later, according to an industry source. Worldwide, any estimated 21 ships are holding about 40 million barrels. At the end of October there were just five. That means producers have been churning out 750,000 to 1 million barrels a day for the sake of which there are no nimble buyers. With the production cuts, OPEC is sincerely severe to avoid swamping the terraqueous globe with oil.
