OPEC faces tough test in maintaining production cuts<\/p>\n
Nadra Saouli, Agence France-Presse, Vienna<\/p>\n
Saudi Arabia has pushed OPEC to announce oil production cuts
\nbut it remains to be seen if crises in Iraq and Venezuela keep
\nthe oil cartel from holding to its promises.<\/p>\n
Faced with the threat of falling prices for oil, Saudi Arabia
\nsucceeded at an Organization of Petroleum Exporting Countries
\nmeeting in Vienna Thursday in getting the 11-nation cartel to
\nagree to cut production by setting quotas at levels it expects
\nmember states to respect.<\/p>\n
OPEC, notorious for straying from its own quota limits, wants
\nto take 1.5 to 1.7 million barrels per day (bpd) off the market,
\ndriving down its production to the new overall quota of 23
\nmillion bpd.<\/p>\n
Saudi Arabia had tried to set similar limits at a previous
\nOPEC meeting in Osaka, Japan, in September, but ran into
\nopposition from other Gulf oil states which fought for
\nmaintaining the status quo.<\/p>\n
Saudi Arabia, the world's largest oil producer with seven
\nmillion bpd, has now got what it wants.<\/p>\n
"But the real question is will they respect their
\ncommitments," U.S. oil expert William Edward of the Edwards
\nEnergy Consultant firm, said of the OPEC states.<\/p>\n
Qatar Oil Minister Abdullah bin Hamad Al Attiyah said in
\nVienna that he was "confident all (OPEC) members will comply"
\nwith the new norms as the cartel is seeking to restore its
\ncredibility, which has suffered because of a lack of discipline
\nin the past in respecting production limits.<\/p>\n
But with countries like Nigeria and Algeria anxious to keep
\nproduction high, "it all depends on everyone being committed,"
\nsaid Yasser Elguindi, oil analyst for the New-York-based Medley
\nGlobal Advisors institute.<\/p>\n
One thing pushing towards this is "the fact that we're going
\ninto the first quarter when demand is traditionally lower than
\nnormal," since traders are buying for spring and summer, when
\ndemand in the northern hemisphere for oil is low, Raad Alkadari,
\nan expert for the Washington-based Petroleum Finance Company
\nsaid.<\/p>\n
OPEC's final statement after its meeting Thursday showed its
\nawareness of possible problems when it said "that the relative
\nstrength in current market prices is partially a reflection of
\nthe prevailing political situation."<\/p>\n
OPEC President Rilwanu Lukman of Nigeria said the cartel
\nwanted oil prices to stay in the range of US$22-28 a barrel.<\/p>\n
He said that while prices had softened since September, they
\nhad come back recently due to "uncertainty that has been created
\nby the political tensions in Iraq and, most recently, Venezuela."<\/p>\n
This creates the possibility that OPEC states might ratchet up
\nproduction to take advantage of higher prices coming from feared
\nor real shortages from either a general strike in Venezuela that
\nis paralyzing oil production or from a war in Iraq.<\/p>\n
Such overproduction would set the stage for falling prices
\nonce the market had more oil than it could handle.<\/p>\n
This is precisely what the Saudis fear.<\/p>\n
OPEC states have never cheated on their quotas as much as in
\nthe last quarter of this year, producing almost 2.5 million bpd
\nover the old quota of 21.7 million bpd after oil prices rose to
\n$29.<\/p>\n
The Saudis remember well what happened in 1998-1999 when OPEC
\nincreased its quotas to match actual production but then fell
\nvictim to overproduction that continued while the Asian economy
\nfaltered due to a financial crisis.<\/p>\n
Oil prices fell to $10 a barrel.<\/p>\n
An additional cloud on the horizon is that OPEC failed in
\nVienna to discuss a new quota system demanded by Algeria, Nigeria
\nand Venezuela.<\/p>\n
These countries are anxious to produce more oil in order to
\nfinance economic development.<\/p>",
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