OPEC struggles to find balance in oil market

[November 29, 2008]  CAIRO, Egypt (AP) -- Saudi Arabia's oil minister said that OPEC will do what it has to in order to shore up falling oil prices when it meets next month in Algeria, even as the cartel gathered for an emergency meeting Saturday in Egypt.

Ali Naimi did not entirely rule out the chance that the Organization of Petroleum Exporting Countries would slash crude oil output at the cartel's hastily convened meeting Saturday. But he said the bloc needs to assess the impact of two previous rounds of production cuts, and that would not be clear until OPEC meets again in Oran, Algeria on Dec. 17. The cartel will then "do what needs to be done," he told reporters before a meeting of ministers from Arab oil-producing countries that took place ahead of the OPEC meeting.

Libyan oil chief Shokri Ghanem, meanwhile, told reporters "all options are open."

OPEC countries are trying to find a way to stem plunging energy prices caused by plummeting demand amid the global economic meltdown.

Experts say Saturday's meeting will come down to what Saudi Arabia, the kingpin and traditional price dove in a group that supplies 40 percent of the world's crude oil, wants.

Saudi King Abdullah said in an interview published Saturday in the Kuwaiti newspaper Al-Seyassah that oil should be priced at $75 a barrel, far above its current rate.

"We believe the fair price for oil is $75 a barrel," he said, without saying how to reach that price.

A barrel of crude cost about $147 in mid-July. On Friday, the U.S. benchmark West Texas Intermediate crude for January delivery was trading at about $54 per barrel.

The cartel held an emergency meeting in Vienna on Oct. 24 to announce a production cut of 1.5 million barrels per day to try to halt the price slide. Its next scheduled meeting is on Dec. 17 in Algeria.

The production cut failed to stop the price drop, and the cartel hastily convened the Cairo gathering on the sidelines of the Organization of Arab Petroleum Exporting Countries' meeting.

"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 an avalanche sped along by a world financial meltdown that also threatens to cut deeply into OPEC member states' government budgets.

But ministers arriving Friday in Cairo were reticent. Saudi oil minister Ali al-Naimi said the cartel would issue an announcement on Saturday and declined to indicate which way they were leaning.

Kuwait's oil minister Mohammed al-Aleem said he believes there is no need for OPEC to make a decision in Cairo on cutting output. But he warned the market is oversupplied, and didn't rule out the need for OPEC to cut production further.

"We believe a decision could be taken ... but I think it will happen in Algeria," he said.

Al-Aleem said current prices could undercut investment in future projects and were not good for either producers or consumers.

The recent price drop has left price hawks Venezuela and Iran clamoring for further reductions of at least 1 million barrels a day. Both countries need crude at about $90 per barrel to meet spending needs aimed in part at propping up domestically unpopular regimes.

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

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 for 2008 fiscal accounts to break even.

OPEC itself, along with the International Energy Agency, has significantly revised down its projections for demand growth in 2009.

Meanwhile, global crude inventories are growing, as evidenced by a U.S. government report showing a surprisingly large 7 million barrel build in stocks last week in the world's largest energy consumer.

OPEC's last round of cuts would put its total production at about 30.5 million barrels per day, according to the IEA. That is about 500,000 barrels per day higher than the forecast call on OPEC crude in much of 2009.

A Nov. 24 Oppenheimer research report says that for oil to rebound to $65 a barrel, OPEC would need to cut crude production by more than 3 million barrels per day from its September levels - a move it called highly unlikely.

[Associated Press; By TAREK EL-TABLAWY and ADAM SCHRECK]

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