OPEC will cut production

OPEC Will Cut Production On December 9, Targets $ 75 Per Barrel
3, December 2008



Once more OPEC members didn’t surprise the world oil markets. The informal meeting of cartel’s members last weekend in Cairo, ended without any serious decisions, as was being predicted. Now, everybody is waiting for the results of the next meeting on December 9 and, especially, the volume of the daily oil production that will be cut by the oil producers. The new cut of daily production in Algeria’s meeting is considered a certainty, and every other evolution will be a great surprise.
In a statement after Saturday’s meeting (last week) in Cairo, the group warned demand will be “much lower” than expected a month ago, meaning that a new cut of daily production is more than inevitable. But OPEC has no space for surprises and the only question mark is the exact amount of the new cut. Crude oil prices has dropped 62 per cent from July’s record of $ 147.27 a barrel as the global recession erodes sales and at the same time producers revenues, so a new cut is considered absolutely essential to restore oil prices to “fair” level.
According to Ali al-Naimi, the Oil Minister of Saudi Arabia, OPEC’s largest exporter and its de facto leader, $ 75 a barrel represents a “fair price” needed to support investment in new fields and of course to support revenues of oil producers. OPEC’s export revenue will be $ 979 billion in 2008, 9.6 per cent less than expected a month ago, because of sinking crude prices, the US Energy Department forecasts.
The desired, for oil producers, price level was the first important information that world oil markets received from Cairo. The next one was the estimate about the current oversupply in oil markets. "There is oversupply of two million barrels per day on the market and we are seeking to create a balance between demand and supply," Oil Minister Gholam Hossein Nozari told reporters. Without a question, such a huge cut of oil production in Algeria meeting would be a powerful shock for oil markets, but the majority of analysts think that this would be a very brave decision for OPEC’s standards.
Another problem for oil producers is that compliance with existing supply quotas is “not good enough,” based on current forecasts, said OPEC secretary-general Abdalla El-Badri. OPEC does not publish production figures from its members, so countries have to rely on so-called secondary sources, which include estimates by oil consultants and monthly figures published by the International Energy Agency. Some producers believe that Iran and Venezuela, which have been the most vocal in calling for new production cuts to shore up prices, are not carrying enough of the burden. Others, like Angola, see little upside to reducing their own output while they seek to attract new investors. Some, like Saudi Arabia, do not want to lose both market share and revenue while others benefit from their production cuts.
He also urged non-OPEC members Russia, Mexico and Norway to restrain supply, as they did a decade ago when prices slumped toward $ 10 a barrel. That’s explain why the Cairo meeting was originally scheduled as a meeting of Arab producers, but was expanded into a full meeting for all OPEC members, including countries like Venezuela, Iran and Angola. “All non-OPEC should come and help, it is a big burden for OPEC,” El-Badri told reporters. As well as Russia, “the ones we know that have the capability to cut are Norway and Mexico.”
Source: www.hellenicshippingnews.com