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