OPEC is quicker on the draw than it used to be. The oil exporting group says it will not hesitate to cut production by as much as a million barrels a day if prices keep falling the way they did over the last week.
"OPEC's aim is price stability along with response to market demand," said an authoritative source close to the OPEC presidency, currently held by Algeria.
"It could cut production by as much as a million barrels a day," he added. The same source announced last Thursday that a special OPEC meeting could take place in Vienna at an early date, prompted by the weakness of demand due to high stocks.
The Organization of Petroleum Exporting Countries has already twice reduced production this year by a total of 2.5 million barrels a day, but has kept quotas unchanged during its last two meetings last month and at the beginning of July.
Algeria's energy minister Chakib Khelil, currently chairing OPEC, is in contact with colleagues on fixing a meeting date, the source said. Even without such a meeting, OPEC could also apply its price stabilization mechanism which foresees an automatic reduction of half a million barrels a day if the reference price stays below $22 for 10 business days.
The next regular OPEC conference is scheduled for September 26. A ministerial gathering in the next few days would be the fifth this year, proof of OPEC's declared will to keep abreast of market developments.
The price of crude began very low at the beginning of the last week, depressed by a slowdown in world demand, together with resumption of Iraqi supplies and a spectacular rise in US crude stocks.
"OPEC's rapid reaction shows that the aim of $25 a barrel (for the basket of OPEC's seven world crudes) is now more important to it than its fixed price range," said Pierre Terzian, oil expert and editor of the French weekly Petrostrategies.
Prices per barrel have not yet broken out of the OPEC $22 to $28 range. However its basket was only $22.78 on Thursday and $22.64 on Wednesday. OPEC's latest burst of activism also confirms its desire to act more in anticipation of than in reaction to events, Terzian said.
The organization has not forgotten the crude price meltdown that happened in 1998 and the start of 1999 when it increased output without taking the Asian crisis into account.
Saudi Oil Minister Ali al-Nuaimi said Friday: "All sources of information are leading us to believe we are heading to a crisis, that demand is diminishing, that supply is excessive and therefore if OPEC needs to maintain its (price) band, then it should take drastic action to cut production."
The Cyprus-based Middle East Economic Survey (MEES) reported in its latest edition OPEC was considering an output cut of between 750,000 and one million barrels per day (bpd) to prop up prices.
"A production cut of between 750,000 and one million bpd is being discussed seriously. Exactly how much remains to be decided," said MEES.
Some OPEC members are also calling for more credible OPEC discipline, it said, estimating the combined output of cartel members minus Iraq averaged around 24.99 million bpd in June, almost 790,000 bpd above the OPEC quotas.
On Friday, oil prices bounced off six-month low points as traders drifted back into the market amid talk of the possible cut by OPEC exporters. Reference Brent North Sea crude for September delivery rose to $24.41 a barrel from $24.05 on Thursday evening—the lowest closing price of the year so far. — (AFP)
© Agence France Presse
© 2001 Mena Report (www.menareport.com)
