Oil prices seesaw as OPEC keeps market guessing on output
Oil prices see-sawed on Tuesday, September 25, as the OPEC oil cartel kept the market guessing on whether it would take any action on output to shore up the market after the recent price slide.
By late afternoon, the price of a barrel of Brent North Sea crude for November delivery was ahead 20 cents at $22.30, having given up the bulk of early gains. In New York, light sweet crude November futures rallied at the opening bell, before paring gains to $24 at $22.25. Both had tumbled by over three dollars a barrel on Monday.
The fall — the largest for more than a decade — was fuelled by concerns about a slump in demand for crude. Such concerns have now overtaken worries that US retaliation could hit Arab oil producers.
The slump has created a major headache for the oil ministers of the Organization of Petroleum Exporting Countries (OPEC), arriving in Vienna for a scheduled conference overshadowed by the price slump.
Analysts say that political constraints might prevent OPEC from cutting output after the September 11 terrorist attacks on the United States. But OPEC oil ministers have expressed alarm at the price slump. The lesson from the 1998 Asian financial crisis is a painful reminder of what can happen when there is too much crude on the market when economies are slowing.
Then, prices collapsed to below $10 a barrel, putting severe strains on the budgets of oil producers. Venezuela's oil minister, Alvaro Silva Calderon, said on Tuesday that OPEC was "very concerned" about the fall in crude oil prices. "Of course we are very concerned, like non-OPEC oil producers as well," he told reporters in Vienna.
OPEC's president, Algerian oil chief Chakib Khelil, had said on Monday that the organization had not ruled out an output cut. "We want a $25stable price," he said as he arrived in Vienna late on Monday. Asked if OPEC might vote through a cut in output at the meeting, Khelil said merely: "We have a mechanism so we just apply the mechanism."
If applied, the price mechanism provides for an output cut of 500,000 barrels per day (bpd) if oil prices persist below $22 a barrel for 10 consecutive trading days.
The OPEC basket of seven crudes worldwide slumped on Monday to $20.51 a barrel, the organization’s secretariat said in Vienna on Tuesday. OPEC has thrice cut output this year by a total of 3.5 million bpd to defend its target price of $25.
But traders say that OPEC members, especially doves such as Saudi Arabia — by far the biggest OPEC producer — may feel their hands are tied on an output cut this time. A trader at the London Petroleum Exchange, Paul Goodhew, said that the pressure was on OPEC not to cut because to do so would harm the global economy. "The US would not be very happy if they cut production," he told AFP. ― (AFP, Vienna)
© Agence France Presse 2001
© 2001 Mena Report (www.menareport.com)