I guess here's some possible good news:
September 16, 2001
OPEC's Effort to Stabilize
Prices Looks Unworkable
By THADDEUS HERRICK
Staff Reporter of THE WALL STREET JOURNAL
OPEC's successful strategy of holding oil prices in a narrow and relatively high range is looking increasingly unworkable as it prepares to meet next week in Vienna.
The Organization of Petroleum Exporting Countries' effort to keep prices at about $25 a barrel for a basket of OPEC blends appears politically untenable as the U.S. increases pressure on its Persian Gulf allies to help find those responsible for last week's terrorist attacks. This pressure also could sow seeds of dissension within OPEC, pitting U.S. allies such as Saudi Arabia against U.S. adversaries such as Iran, ultimately fraying the unusual unity that has defined the group for the past two years.
Meanwhile, the New York Mercantile Exchange -- located near the now-destroyed Twin Towers -- remained closed. But the Nymex, which trades the benchmark crude-oil futures contract in the U.S., is planning to hold an abbreviated open-outcry session Monday from 11 a.m. to 2 p.m. EDT after determining that its building was safe to use, an exchange spokeswoman said Sunday. In a brief session Friday on the exchange's Internet-based Access system, the October-delivery price surged nearly $2 at $29.53 a barrel. (There was no Access trading Sunday.)
Aside from unity questions, OPEC also faces the prospect that the attacks on the World Trade Center towers and the Pentagon will push the world into a U.S.-led recession, putting pressure on the organization to help address global economic ills by moderating oil prices.
"The strategy is over," says Roger Diwan, an analyst with Petroleum Finance Co., a Washington consulting firm. OPEC unity may not survive into 2002, he says. "This is a different world."
Analysts and economists had been forecasting higher oil prices for 2002, in part because of low inventories and declining production from the biggest oil companies during the first six months of the year.
OPEC, which has cut oil production by 3.5 million barrels a day this year, was intending to hold steady its production at the coming meeting. The organization officially produces 23.2 million barrels of oil a day, or slightly less than 40% of the world's oil.
Mr. Diwan predicts oil prices ultimately will fall below the lower end of OPEC's price target range, which is $22 to $28 for a basket of the group's crude oils, and quite possibly even lower, because of an expected economic slowdown and outside pressure on OPEC. The U.S. benchmark oil runs a few dollars a barrel higher than the OPEC basket.
Near term, of course, oil prices could spike, especially if the U.S. retaliates for the attacks against an oil-producing country or region. Some even see oil prices bolstered in the longer term by U.S. military spending. Already, the U.S. armed forces have booked two tankers to transport marine diesel to a base in the Indian Ocean and another to carry aviation fuel from Greece to Southern Spain.
On Friday, underlining such tensions, Brent crude for November delivery surged 98 cents on London's International Petroleum Exchange to $29.35 a barrel.
In a series of statements last week, OPEC and its members sought to assure the U.S. that the organization would supply whatever oil is needed to maintain stability in markets. One Saudi official said the kingdom is reviewing its oil-production output on what he suggested is a day-to-day basis.
Meanwhile, senior Bush-administration officials, in discussions with OPEC members, are pressing the organization to put more oil on the market to allow refiners to build heating-oil stocks for winter. "It's quiet diplomacy," says one administration official. "At the same time it's harsh, tough and realistic."
Even without pressure from the Bush administration, further OPEC production cuts are seen as an unattractive option, even to keep prices up, because volume reductions can cut more deeply into revenue than small price declines.
OPEC members, too, recognize that the economic health of the consuming world is critical to their business, another reason they may resist high prices amid economic downturn. Says John Cook, director of the petroleum division of the Department of Energy's Energy Information Administration, "The health of the customers has to be as paramount as their own budget concerns." |
