Michael Happel posted this elsewhere, I thought it worthwhile enough to repost here:
Saudi Minister al-Naimi Says Oil Market in `Crisis'
(Update2)
By Sean Evers, Stephen Voss, Patrick Gordon and Alex Lawler
Vienna, Nov. 15 (Bloomberg) -- The oil minister for Saudi Arabia, which sits atop
a quarter of the world's reserves, said the oil market has entered ``crisis mode''
because of slowing demand and a looming fight between OPEC and rivals such
as Russia.
``We will see who has the resolve,'' Saudi Oil Minister Ali al-Naimi told reporters
in Vienna. ``If the price really drops and stays down, you will see a lot of
instability not only in the economy but also in the stock of companies and their
ability to invest in future production.''
The Organization of Petroleum Exporting Countries, which pumps a third of the
world's oil, yesterday refused a fourth cut in output this year unless
non-members also lower shipments. AO Yukos Oil Co. Chief Executive Mikhail
Khodorkovsky, who runs Russia's No. 2 oil company, today rejected the call for
help.
The spat sent oil prices to a two-year low around $18 and raised the specter of
1998, when crude fell below $10 a barrel. Russia, once the world's top oil
producer, this year has been stealing market share as OPEC members curtailed
supplies to prevent a glut as economies and energy demand slowed.
Brent crude oil for December settlement slid as much as 76 cents, or 4.1
percent, to $17.99 a barrel on the International Petroleum Exchange in London.
Prices are down almost 50 percent in the past 12 months.
The two-day drop in oil prices since OPEC's decision erased as much as $51.2
billion from the stock-market value of Europe's three largest oil companies, Royal
Dutch/Shell Group, BP Plc and Total Fina Elf SA.
OPEC wants a 6.5 percent cut in exports from Russia, now the world's
second-largest supplier, after Saudi Arabia. Russia produces 6.8 million barrels a
day and before OPEC met had offered a reduction of 30,000 barrels a day, or 0.4
percent. Al-Naimi called that ``extremely unreasonable.''
Russians Ready for Fight
Russian oil producers signaled they were prepared for a fight.
``OPEC's proposals are not acceptable for Russia,'' Khodorkovsky said. ``Prices
will collapse, but our Arab colleagues won't be able to keep low prices more than
two years'' because their economies are very dependent on oil exports.
OPEC yesterday agreed to lower production by 1.5 million barrels a day on Jan.
1, on condition that non-OPEC producers also cut 500,000 barrels a day. The
move would OPEC's oil quota to the lowest level since the Gulf War.
OPEC ministers said they had commitments from Mexico and Oman, though
they were still holding out for a larger contribution from Russia and a reduction
from Norway.
Russian Prime Minister Mikhail Kasyanov said the country will not agree to a
``large reduction'' in exports, Interfax reported. OPEC Secretary-General Ali
Rodriguez said today in Vienna that he will meet with Russian officials next
month.
Most of Russia's production is now in the hands of private oil companies such as
OAO Lukoil and Yukos.
``OPEC has publicly gone out of its way to threaten Russia, thinking that it can
win this fight,'' said Raad Alkadiri, an analyst of Middle East oil at
Washington-based Petroleum Finance Co. who was attending the OPEC
conference. ``OPEC clearly believes that Russian companies are vulnerable to
low prices and will eventually give in.''
Norway's Minister for Petroleum and Energy, Einar Steensnaes, will talk to
al-Naimi today to discuss the oil market, though Norway is still opposed to
making production cuts.
Swing Producer Lessons
Oil prices have fallen more than $12 a barrel since an initial surge after the Sept.
11 attacks on the U.S. Janet Henry, a global economist with HSBC, estimates a
$10 drop in the oil price boosts world trade by about 0.5 percent a year later.
OPEC has aimed to keep its benchmark oil price in a range of $22 to $28 a
barrel and had succeeded in keeping prices within, or above that, for two years
until September. Those days are over.
``We have no floor'' for prices, OPEC's Rodriguez said today. ``We will suffer the
consequences of our common problem if we don't have a common solution.''
The Saudi minister said he expects next year's increase in oil demand will be
``very small'' because of struggling world economies. As a result, cooperation
from non-OPEC producers is ``more important'' than OPEC's compliance with its
quotas.
Periods when Saudi Arabia has acted to regulate the market, such as 1982 to
1985 and 1995 to 1997, have been detrimental for all producers since prices
plunged, al-Naimi said.
He denied that Saudi Arabia and OPEC was starting a price war since the nation
isn't planning to use its 3 million barrels a day of spare production capacity.
Feeling The Pinch
Should other producers pledge cuts, OPEC has no special mechanism to verify
whether they take place. Russia in 1998 and 1999 promised to reduce exports
though failed to deliver.
Saudi Arabia is already feeling the pinch of lower oil prices. Its government is
expected by two of the country's top three banks to post a budget deficit of at
least $5 billion in 2002. Its advantage are lower production costs, analysts said.
Russia ``is engaged in a game of chicken with OPEC, and OPEC cannot afford
to flinch first,'' said Eric Kraus, chief strategist at Nikoil Capital Markets in
Moscow. ``Oil prices in the mid-teens will focus minds, and I think Russia will
eventually cut'' supply, he said. |
