Will we see $10 oil?
OPEC Warns of Price Collapse
After Call for Cuts Is Unheeded
By BHUSHAN BAHREE
Staff Reporter of THE WALL STREET JOURNAL
PARIS -- Members of the Organization of Petroleum Exporting Countries continue to warn other major oil exporters that a painful price collapse could occur early next year unless they join together to reduce world crude supplies. So far, however, the OPEC members haven't won any converts.
With demand for oil falling fast as the world economy stumbles, oil prices have continued to fall to below the $22-a-barrel bottom end of the group's target range for a basket of OPEC crudes. OPEC members, whose economies depend on oil revenues, would like to cut production but find it hard to do so when exporters such as Russia and Angola continue to raise output and grab market share.
"If we go on like this and stocks [inventories] continue to build up, we'll have a crisis in the first and second quarters" of next year, a senior OPEC official said. "Prices will collapse to $10 a barrel," he said.
Of course, OPEC wants to paint a gloomy picture to win support from other exporters.
But more and more, it is facing the prospect of reducing output on its own when the organization's oil ministers meet in Vienna on Nov. 14. Such a cut likely would go into effect Jan. 1, to account for a brief seasonal rise in demand during December and the possibility that Iraq's exports could be disrupted when the country negotiates a new six-month arrangement with the United Nations.
At a meeting of experts from OPEC and non-OPEC exporting countries Monday in Vienna, the attendees agreed on the outlook for oil prices, but didn't come up with any recommendation for output cuts or how they could be shared. Over the weekend, Saudi Arabia's influential oil minister, Ali Naimi, had said the experts would "distill the numbers and advise us on the size of a cut" in output needed at this time.
Expectations that OPEC was moving toward reducing output by as much as one million barrels a day helped push up oil prices early Monday, but then new doubts brought prices back down. On the New York Mercantile Exchange, the U.S. benchmark crude for December delivery settled at $22.15 a barrel, up 12 cents.
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So far this year, OPEC has agreed to cut output by 3.5 million barrels a day out of a world market of about 76 million barrels of oil a day.
But members have been cheating on their quotas, though compliance improved this month, according to industry experts who track production and to OPEC officials.
OPEC has tried persuasion and pressure at the highest levels; Venezuelan President Hugo Chavez has met with his counterparts in Russia and Mexico, among other places. But Mexican President Vicente Fox's response was typical. "There will be no production cuts at the moment," Mr. Fox said Sunday, after meeting with Mr. Chavez. "When we think it convenient to do something different, we will."
Russia and Angola, which are increasing production faster than demand is growing, have given much the same answer. Norway's oil minister has said an output cut isn't on his agenda.
The only success for OPEC so far came when Mr. Naimi, the Saudi minister, this weekend persuaded Oman, a small producer, to agree to cut output alongside OPEC.
Russia is producing more than seven million barrels a day, up 500,000 barrels a day so far this year.
Next year, the Paris-based International Energy Agency expects the oil output of Russia to rise by another 400,000 barrels a day, to bring it near the level of Saudi Arabia, the world's largest producer and exporter.
Write to Bhushan Bahree at bhushan.bahree@wsj.com |
