Business | Oil & Gas
Opec faces crude cutback dilemma
Iran on Thursday called on Opec to slash oil production by a daily 2 million barrels to stop a steep slide in prices that has left crude at its cheapest since last summer.
- AP
- Published: 23:55 October 23, 2008
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Vienna: Iran on Thursday called on Opec to slash oil production by a daily 2 million barrels to stop a steep slide in prices that has left crude at its cheapest since last summer.
The president of the Organization of Petroleum Exporting Countries also said output cuts had to be discussed when Opec oil ministers meet on Friday. But he suggested that a fine line had to walked that stopped the market's decline without doing further harm to shaky world economies.
Spooked by prices that have slid more than 50 per cent from record highs of around $147 (Dh539.5) a barrel in July, the 13-nation Opec has little choice but to scale back production.
Crude futures
Benchmark crude futures were up on Thursday, but only moderately, in a response to expectations of an Opec cutback. They were trading at $67.46 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore after falling $5.43 to settle at $66.75 a barrel, their lowest close since June 13, 2007.
The emergency meeting was originally scheduled for November 18 but was suddenly rescheduled for today earlier this month, in a reflection of Opec's concerns.
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"They're in a bit of panic," said trader and analyst Stephen Schork of Villanova, Pennsylvania. "They underestimated what happens when the bubble implodes." The degree of worry varies, however.
Iran and Venezuela, which traditionally push for higher prices, have a slimmer margin of profit than some others because their oil is heavier and more sulphurous, meaning it sells for less than benchmark crude. Going into this meeting, they again are setting the price yardstick relatively high - Iran is looking for a price of $100 a barrel, and Venezuela at $80-$90.
Price erosion
In contrast, Opec heavyweight Saudi Arabia, which can produce for substantially less, traditionally acts as a brake to demands of deep production cuts. But considering the magnitude of oil price erosion, the Saudis, Opec's number one producers, might be compelled to bow to pressure from Opec price hawks at today's meeting.
The Saudis have been close-mouthed ahead of the meeting. But Iranian oil minister Gholam Hossein Nozari set the bar high for the ministers, telling reporters that a cut of "two million will stabilize prices."
Circumspection
Opec President Chakib Khelil of Algeria was more circumspect. While saying output reduction "has to be discussed," he told reporters any decision today had to avoid aggravating the world economic crisis.
Reflecting the precarious situation Opec finds itself in, Khelil said that too steep a cut will "affect countries which are already affected by economic crisis," while too much moderation could push some Opec producers into the category of nations "affected by the financial crisis."
In the past, sizable cuts in Opec production have led to significant jumps in prices. But with demand already falling due to the economic downturn in the US and other major consumers, even large-scale reduction may fail to prop up the market.
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