- The Washington Times - Saturday, November 29, 2008

CAIRO | OPEC oil ministers on Friday downplayed expectations of an immediate output cut as they faced a third test in as many months of their ability to engineer a rebound in oil prices.

The outcome of the hastily convened Cairo meeting Saturday, billed as a consultative gathering to assess the impact of earlier production cuts, likely hinges on a key issue with which the cartel has had a checkered past; namely, unity.

Kuwaiti Oil Minister Mohammed Al-Aleem told reporters in Cairo that while the market was oversupplied, he believed there was “no need” for the Organization of the Petroleum Exporting Countries to decide on cuts ahead of its regularly scheduled Dec. 17 meeting in Algeria.

But Rafael Ramirez, oil minister for price hawk Venezuela, later said the option remained to cut production by “at least 1 million barrels” at the weekend gathering. “Maybe it’s necessary, a new cut,” Mr. Ramirez said.

The diverging takes highlighted the difficulty of the task facing producers of almost 40 percent of the world’s oil.

“There is total confusion” among OPEC’s 13 members, said Fadel Gheit, managing director of oil and gas research at Oppenheimer & Co. in New York. “These people … really have no business model. They basically thrive when oil prices go up, and now they are ‘crying uncle’ when prices go down.”

And, down they have gone, in a financial avalanche triggered by a drop off in demand, itself sped along by a world financial meltdown that also threatens to cut deeply into OPEC member states’ government budgets.

Crude stood at about $147 a barrel in mid-July but now hovers about $90 lower. On Friday, the U.S. benchmark West Texas Intermediate crude for January delivery was trading about $3 lower before ending the session nearly unchanged at $54.43 a barrel on the New York Mercantile Exchange.

Saturday’s meeting will come down to what kingpin and traditional price dove Saudi Arabia wants, said Vincent Lauerman, OPEC specialist and president of consultancy Geopolitics Central in Calgary, Alberta, in Canada.

Saudi Oil Minister Ali al-Naimi told reporters that answers would come Saturday.

The cartel has already held one emergency meeting — on Oct. 24 in Vienna, Austria — to try to halt the slide in prices, and announced an immediate production cut of 1.5 million barrels per day.

That failed to support prices, and the cartel cobbled together the Cairo gathering on the sidelines of the Organization of Arab Petroleum Exporting Countries’ meeting.

“As long as they do a substantive cut, they may be getting ahead of the curve, and should be cutting enough to get ahead of demand destruction,” said Mr. Lauerman, citing about 1 million to 1.2 million as the magic number.

That has been the figure most readily cited by those nations proposing cuts, including Venezuela, which, like fellow price hawk Iran, needs crude of about $90 per barrel to meet current spending needs aimed in part at propping up its domestically unpopular regime.

The two have found support from non-OPEC oil giant Russia. Its president, Dmitry Medvedev, said Thursday that Moscow would cooperate with the group to support prices.

Other OPEC members, such as Nigeria and Ecuador, face budget problems, too, making them reluctant to implement more cuts that might shrink revenues further.

Unlike many of their fellow members, the Saudis are better positioned to cope with the drop in prices. The International Monetary Fund estimates Riyadh needs crude in the range of about $50 per barrel to break even.

While Mr. al-Naimi refused to tip his hand, an indication of Saudi thinking may have emerged earlier this month when, during the Group of 20 meeting in Washington, King Abdullah pledged the kingdom would do everything in its power to help the global economy recover.

Higher oil prices would undermine that promise.



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