Sep 27, 2001 -- OPEC ministers took no action to prop up oil prices at their meeting
Wednesday, but analysts said the cartel will not stand idly by if prices
continue to fall much further.
After a short meeting in Vienna, the ministers agreed they had no option but to
keep output for 10 member countries, excluding Iraq, steady at 23.2 million
barrels a day.
The group showed restraint even though prices plunged almost $4 per barrel
Monday, the largest one-day drop since the Gulf War. The OPEC ministers are
reacting to growing signs that the economy is more likely to slip into a
recession since the terrorist attacks on Sept. 11.
The current price of the crude oil sold by the group is about 10 percent less
than the low end of its desired price range, but the group has to be wary of
pushing up prices at a time when that could further damage the world economy.
Rather than taking oil off the market, members were urged to adhere tightly to
their current quotas. All of the members of the Organization of the Petroleum
Exporting Countries, except Indonesia, are cheating on their quotas.
Another gathering of the cartel is likely to be called for early November.
If prices have continued to fall, the cartel will almost surely have no choice
but to pull more oil off the market and weather any political ramifications,
said Kenneth Miller, senior principal with the Houston office of Purvin & Gertz
energy consultants.
"I think it's about as low as they would like to see it right now," he said.
"They are caught in a very difficult position, but if the market continues to
decline, it won't be long before they decide they may need to reduce
production."
Miller estimates the entire cartel is producing about 750,000 barrels per day
over current quotas. If that oil alone is taken off the market over the next few
weeks, it would help support prices as much as an official production cut, he
said.
Light, sweet crude oil for delivery in November rose 57 cents a barrel on
Wednesday to close at $22.38.
October gasoline rose .3 cent to 62.39 cents a gallon. October heating oil was
up 3.03 cents to 64.79 cents, while natural gas fell 9.5 cents to $1.830 cents
per thousand square cubic feet.
The slowing economy and the terrorist attacks have caused demand for petroleum
products to tank, especially jet fuel. Estimates are that demand will be off by
500,000 barrels per day through the first quarter.
Typically the fourth and first quarters are some of the strongest for demand
because refiners are making heating oil for the winter and gasoline ahead of the
driving season.
The ministers are expected to ratify their decision on quotas and to release a
statement today.
They met late on Wednesday with officials from non-OPEC nations such as Mexico,
Norway and Russia, which have in the past set their output to support the
group's goals.
OPEC has been trying to maintain the price of the OPEC basket, an average price
of crudes produced by member countries and Mexico, within a range of $22 to $28.
If the price falls below that range, the cartel has agreed to pull 500,000
barrels per day from the market without holding a formal meeting.
The OPEC basket price on Wednesday was $19.87. This average of the various
crudes produced by the group tends to be lower than the benchmark price because
it includes heavier, lower-value crudes.
OPEC already has reduced output three times this year, the latest reduction of a
1 million barrels a day coming into effect at the beginning of this month. That
gives it little, if any, room to reduce output further without handing market
share to other non-OPEC suppliers.
It is estimated that the cartel is holding back more than four 4 million barrels
a day of spare capacity in the 76 million barrels per day world market. |
