OPEC cartel facing tough times<\/p>\n
By Karen Matusic<\/p>\n
VIENNA (Reuter): In a hi-tech and electronic global
\nmarketplace for oil, the OPEC cartel worries about becoming an
\nanachronism.<\/p>\n
Low prices compelled the Organization of the Petroleum
\nExporting Countries at a Vienna conference this week to freeze
\nits production quotas into an unprecedented third year, despite
\nforecasts of a surge in demand for oil.<\/p>\n
Time was when OPEC ministers would in their luxury hotel suite
\ncabals dictate world oil prices with the swish of a pen -- up to
\nUS$40 per barrel compared with less than $17 today.<\/p>\n
But the 12-nation cartel now is at the mercy of flickering
\nscreens that reflect action on world futures markets, where paper
\nvolumes traded dwarf the 25.5 million barrels of crude oil that
\nOPEC actually pumps each day.<\/p>\n
Schooled, however, by recurrent glut, OPEC has learned a lot
\nabout market fundamentals and psychology in a colorful 35 years
\nof history. And it seems now to realize its limitations.<\/p>\n
\"The organization remains fundamentally the same but the
\natmosphere we're working under has changed. We can't behave like
\nan ostrich,\" a senior OPEC official said after the close on
\nWednesday of OPEC's 99th ministerial conference.<\/p>\n
OPEC is locked in a tug-of-war with rival producers for
\ncontrol of world supply. Technological advance that enables the
\nindustry to drill new reserves at low cost has meant that more
\noil is hitting the market than was ever imagined.<\/p>\n
Of a forecast 1.6 million per day (bpd) surge in world demand
\nnext year, all but 100,000-200,000 bpd is expected to be filled
\nby producers outside OPEC.<\/p>\n
Non-OPEC producers were a subject of discussion at this week's
\nOPEC deliberations, but a possibility of a repeat of a 1980s
\nprice war which plunged prices below $10 is not expected.<\/p>\n
\"No one wants a repeat of 1986,\" OPEC Secretary General
\nRilwanu Lukman of Nigeria said.<\/p>\n
The fact that OPEC resisted a temptation to raise its ceiling
\nnext year even though the lion's share of the expected surge in
\ndemand will go to producers outside it marked its newly-found
\npragmatism.<\/p>\n
\"It is not a simple supply-demand equation any more. We have
\nto weigh in all other factors,\" Lukman said.<\/p>\n
Such sensitivity to the modern marketplace will continue given
\nthe debut at this meeting of the new oil minister of OPEC
\nheavyweight Saudi Arabia.<\/p>\n
Ali bin Ibrahim al-Nuaimi, an industry man who until recently
\nheaded Saudi state oil giant Aramco, replaced technocrat Hisham
\nNazer, the minister since 1987.<\/p>\n
The wiry Nuaimi, who briskly walked the 2.5 km (1.5 miles)
\nfrom his hotel to the OPEC Secretariat where this week's talks
\nwere held, has a more businesslike approach to his job.<\/p>\n
But he is not likely to give much away to oil traders waiting
\nfor his every word for some insight into the policy of the
\nworld's largest producer. The only thing he said publicly was
\nthat he wanted higher prices.<\/p>\n
\"Our minister prefers to let his actions speak,\" one Saudi
\ndelegate said.<\/p>\n
Oil prices barely moved on OPEC headlines this week and are
\nexpected to stay in the $16.00-$17.00 a barrel range seen over
\nthe past five months, well below OPEC's own target of $21.<\/p>\n
Traders said oil markets, while not totally ignoring the
\ncartel given the weight of its ample unused production capacity,
\nare better at predicting OPEC actions.<\/p>\n
\"It is significant that OPEC engineered this meeting so as not
\nto fuel bearish market sentiment,\" said Mike Rothman, a senior
\nvice president of energy futures at Merrill Lynch.<\/p>\n
The agreement will very likely result in a continuation of the
\nsideways oil trend.\"<\/p>\n
Although the OPEC ministers are concerned about losing market
\nshare to prolific rival producers outside the group, they
\nrealized that maintaining the status quo was the best they could
\ndo under the circumstances.<\/p>\n
\"OPEC is in a straitjacket,\" said oil analyst Geoff Pyne of
\ninvestment bank UBS.<\/p>\n
Lukman, who spent hours in informal meetings with various
\nministers to hammer out the deal, said the quota freeze was
\ncarefully thought out.<\/p>\n
\"It wasn't a simple rollover. It was a hard-nosed decision,\"
\nLukman said.<\/p>",
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