It's Official: OPEC Stands Pat
OPEC members agreed formally Thursday to continue pumping oil at current levels of production, forgoing an immediate cut in output despite a dramatic drop in oil prices since the terror attacks on the United States.
Representatives of the Organization of Petroleum Exporting Countries announced their decision after a final round of talks at the cartel's headquarters in Vienna, Austria.
Confronted by shrinking demand for oil and uncertainty over U.S.-led military action against terrorism, OPEC delegates plan to reconvene on Nov. 14 to review market conditions. They said they would cut output at that time if necessary.
OPEC's official output is 23.2 million barrels a day. The group supplies almost 40 percent of the world's oil, including overproduction estimated at between 700,000 and 1.5 million barrels a day.
It has cut back its official production three times this year already, most recently by 1 million barrels a day on Sept. 1.
The delegates agreed Wednesday to stick with their current production quotas but postponed announcing their decision until Thursday because they needed to wrangle over the precise wording of their official communique. The one-day delay reflected the difficulty OPEC's 11 member nations have had in reaching a consensus amid the intense economic and political unease prevailing since the Sept. 11 attacks on the United States.
Several ministers stressed earlier that OPEC's target price remains $25 a barrel, and they did not rule out adjusting output before their November meeting if prices remained unacceptably low.
"We hope not to be forced into that," said Obaid bin Saif Al-Nasseri, oil minister for the United Arab Emirates. He was speaking to reporters at the start of OPEC's formal meeting.
Under an existing arrangement, OPEC has said it will cut its daily production by 500,000 barrels if its benchmark price for crude falls below $22 a barrel for 10 consecutive trading days. The OPEC benchmark price stood at $20.11 on Wednesday, the third consecutive day on which it languished below $22.
Asked if he would support a future cutback in such circumstances, OPEC president Chakib Khelil was emphatic: "Yes, I will."
However, Kuwaiti Oil Minister Adel al-Subeih said he would not be concerned if the price stayed at around $22 a barrel. "We would be satisfied with that," he said.
The meeting took place amid unusually tight security, in the wake of the attacks on New York and Washington. German shepherd police dogs had earlier prowled the building sniffing for bombs, and extra police armed with assault rifles patrolled inside and outside the building.
"Vienna: Sharpshooters in front of OPEC headquarters," said Thursday's front page headline of the city's U-Express newspaper.
Khelil extended OPEC's condolences to the families of the victims of the attacks, before describing the negative effects the attack have had on global demand for oil.
"The impact of the disaster upon the international oiindustry will be profound, particularly in the context of the global economic slowdown and its implications for energy demand," he told his fellow delegates at the start of the meeting.
Although oil prices have plunged several dollars since the attacks, OPEC's 11 members are constrained from cutting output to bolster prices because such a step could shove the fragile world economy decisively into recession.
OPEC's room for maneuver is limited further by the reluctance of key members to antagonize the United States, the No. 1 importer of OPEC crude, as it leads a military alliance against Afghanistan's Taliban regime and the forces loyal to Osama bin Laden, the prime suspect in the terror attacks.
Group members are also wary of being perceived as greedy if they try, so soon after the attacks, to push prices higher by cutting production now.
"You would be seen as trying to gain from the misfortune of others," said Leo Drollas, chief economist of the Center for Global Energy Studies in London.
Oil prices spiked to $31 a barrel after the attacks but have tumbled since then. Some OPEC ministers worry that cascading oil prices might trigger a rout comparable to that of December 1998, when crude plummeted to as low as $10 a barrel.
On Thursday, November contracts of North Sea Brent crude slipped 20 cents to $22.80 in afternoon trading on the International Petroleum Exchange in London. Contracts of light, sweet crude for November delivery moved higher on the New York Mercantile Exchange, up 37 cents to $22.75 a barrel.
Lower company earnings, large cuts in jobs, reduced air travel and other warning signs of a global recession are perhaps the biggest reason for the recent sell-offs. Recession fears, and an accompanying drop in demand for crude, have worsened since the Sept. 11 attacks.
OPEC officials met late Wednesday to coordinate a common production strategy with officials from eight non-OPEC oil producing countries including Mexico, Russia and Angola.
On Thursday, OPEC said the group's new president starting Jan. 1, 2002, will be Nigeria's Rilwanu Lukman. Lukman, Nigeria's presidential adviser on petroleum, will succeed Algeria's Khelil.
Written by Bruce Stanley
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