Non-OPEC producers can be expected to come to terms with the oil cartel's demands and slash output before a January deadline, but a price war remains a possibility, Saudi analysts predicted Sunday, November 18.
"I believe that the lesson of 1998 when prices crashed below $10 a barrel is still alive with major non-OPEC countries. They would not like to see a repetition," Abdul Wahhab Abu-Dahesh, senior economist at Riyadh Bank told AFP.
"But on a worst-case-scenario, a price war should not be ruled out. It is a wait-and-see period until the start of next year," he said. Ministers of the Organization of Petroleum Exporting Countries on Wednesday agreed to cut their production by 1.5 million bpd from January 1, on condition that major non-OPEC producers like Russia, Norway and Mexico cut theirs by half a million bpd.
Mexico announced late Wednesday that it will cut oil exports "up to 100,000 barrels a day" from January 1, if OPEC confirmed its conditional cut. But Russia reiterated Friday that no one could tell it how much oil to export.
"I believe that all producers are convinced of the need to avert a price war, because it is not in the interest of anyone," said oil expert Abdullah bin Ali of the Arab Petroleum Investments Corporation. "But we cannot be certain that a price war is a remote possibility. If it happens, it will have major adverse consequences on all oil producers," Ali noted.
On Thursday the price of crude oil fell below $17 a barrel for the first time since June 1999 after the OPEC decision, but recovered to $17.31 on Friday.
Oil prices have fallen dramatically as major world crude producers have chosen to chase market share rather than price stability at a time when a supply glut is swamping a market undermined by falling demand.
"OPEC is no longer controlling the market alone. It needs assistance and cooperation from other producers for any decision (to cut supplies) to be effective," Ali said. "OPEC is caught between two factors, both of which are not encouraging. Either it does not cut output and prices will crash, or it cuts without non-OPEC cooperation and the result is negative," asserted Ali.
The Russian oil companies will not be able to sustain a head-on collision with OPEC for a long period, Abu Dahesh said. "I believe that the Russian companies are unable to remain stubborn for a long time. Pressure on these companies and the Russian government will eventually bear some fruits," he said.
He said the OPEC decision on conditional cuts is intended for Russia to "rethink its policy and cooperate with OPEC." "Its difficult to say if this policy will be 100 percent successful, but I think it's better than OPEC slashing output and then waiting for non-OPEC states to follow," Abu Dahesh said.
OPEC kingpin Saudi Arabia and other oil-rich Gulf Arab states who depend on oil for more than 80 percent of government income, may need to brace for difficult times ahead. — (AFP, Riyadh)
by Omar Hasan B>
© Agence France Presse 2001
© 2001 Mena Report (www.menareport.com)
