Demand for oil may fall for the first time since 1983 next year, Merrill Lynch & Co. said, as the U.S., Europe and Japan face their first simultaneous recession since World War II.
OPEC Defers Output Decision to December, Seeks $75 Oil Price
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By Maher Chmaytelli and Ayesha Daya
Nov. 30 (Bloomberg) -- OPEC deferred a decision on whether to cut production again this year by two weeks to gauge the impact of previous cuts, as it seeks to push oil prices back up to $75 a barrel.
Crude oil prices have slumped 62 percent from July’s record of $147.27 a barrel as the global recession cuts fuel demand. Ali al-Naimi, the oil minister of Saudi Arabia, OPEC’s largest exporter and its de facto leader, said yesterday that $75 a barrel oil represents a “fair price” needed to support investment in new oil fields.
OPEC, the producer of more than 40 percent of the world’s oil, will next meet in Oran, Algeria, on Dec. 17. In a statement after yesterday’s meeting in Cairo, the group warned that oil demand will be “much lower” than expected a month ago. Prices have continued to slide even after the group agreed on Oct. 24 to cut production by 1.5 million barrels a day starting Nov. 1.
“The way demand data continues to come out, especially from the U.S., suggests that they will have to cut,” said Raja Kiwan, a Dubai-based oil analyst at consultant PFC Energy.
Compliance with existing supply quotas is “not good enough,” based on current forecasts, said OPEC Secretary General Abdalla El- Badri. He also urged non-OPEC members Russia, Mexico and Norway to restrain supply, as they did a decade ago when oil slumped toward $10 a barrel.
‘Additional Action’
The Organization of Petroleum Exporting Countries pledged to take any “additional action” needed to stabilize the market in Oran, according to Chakib Khelil, the group’s president. Asked if OPEC would seek to lower output in Algeria, al-Naimi replied: “A cut is possible, we will have to see.”
The Saudi oil minister said there was a “good logic” for oil at $75 a barrel, backing earlier comments from Saudi King Abdullah who told Kuwaiti newspaper Al-Seyassah that this represents a “fair price.” Crude oil for January delivery traded at $54.43 a barrel in New York on Nov. 28.
OPEC abandoned an official price target almost four years ago and ministers’ expectations have changed throughout 2008 as New York prices rallied to a record near $150 in July, then fell below $50 this month. Ministers from Venezuela, Iraq, Algeria and Nigeria also said yesterday that prices should be at least $75.
Oil producers and drillers from Exxon Mobil Corp. to BP Plc are already suffering from falling prices. OPEC’s oil export revenue will be $979 billion in 2008, 9.6 percent less than expected a month ago, because of sinking crude prices, the U.S. Energy Department forecasts.
Outside Help
El-Badri called for outside help to halt the plunge in oil prices. “All non-OPEC should come and help, it is a big burden for OPEC,” he told reporters. As well as Russia, “the ones we know that have the capability to cut are Norway and Mexico.”
Russia’s energy minister is expected to attend the Algeria meeting, El-Badri said. His plea for help elsewhere may fall on deaf ears after Norway, the world’s fifth-biggest oil exporter, appeared to rule out any production cut earlier this month. “I don’t see any scenarios with regards to that,” Norwegian Oil Minister Terje Riis-Johansen said in a Nov. 18 interview.
OPEC will likely lower supplies before the end of the year, according to 18 of 21 analysts surveyed by Bloomberg last week. About half of those thought an accord would be made in Cairo, while others expected a decision later. Twelve predicted the reduction will be at least 1 million barrels a day, more than is pumped by Qatar.
Venezuelan Energy and Oil Minister Rafael Ramirez said after yesterday’s “consultative” meeting in Cairo that OPEC will still need to cut production by at least 1 million barrels a day by the end of the year.
Cairo Meeting
OPEC called ministers together in Cairo yesterday rather than wait until its next scheduled December conference in Algeria, as the slowing world economy reduced global consumption faster than expected. In September, the group urged greater compliance with existing output limits.
The Cairo meeting, originally intended just for ministers from Arab nations, was expanded into a full meeting for all OPEC members, including countries like Venezuela, Iran and Angola.
The 11 OPEC states subject to output quotas will produce 27.8 million barrels a day in November, according to Geneva- based consultant PetroLogistics Ltd., in excess of their official limit of 27.3 million barrels a day.
OPEC members have a delicate balancing act to perform as they strive to boost prices without overreacting in terms of production cuts and being blamed for exacerbating the economic slowdown.
Demand for oil may fall for the first time since 1983 next year, Merrill Lynch & Co. said, as the U.S., Europe and Japan face their first simultaneous recession since World War II.
Eleven years ago, OPEC members bickered over quotas as oil prices slid 28 percent in 10 months amid the onset of the Asian financial crisis. At a meeting in Jakarta in November 1997, they raised quotas, even as economic turmoil in Asia was slowing demand and prices fell another 44 percent by December 1998 to a low of $10.35 in New York.
Other OPEC nations include the United Arab Emirates, Qatar, Kuwait and Ecuador. Indonesia is expected to leave OPEC at the end of the year.
To contact the reporter on this story: Maher Chmaytelli in Cairo at mchmaytelli@bloomberg.netAyesha Daya in Cairo at adaya1@bloomberg.net |
