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Oil cartel defers new cut

Latest update : 2008-11-29

Gathered to discuss tumbling oil prices, OPEC ministers ruled out further output cuts before next month as Saudi Arabia and its Gulf allies demanded tighter adherence to restraints agreed upon in previous meetings.

Reuters  -  OPEC on Saturday deferred a decision on a new oil supply cut amid signs that Saudi Arabia and its Gulf allies are demanding tighter adherence to restraints agreed in the past two months.
 
Gulf ministers said they wanted to see strict compliance with two recent output curbs before considering further reductions when the Organization of the Petroleum Exporting Countries meets next in Algeria on Dec. 17.
 
"Compliance I think is OK," said Kuwaiti Oil Minister Mohammad al-Olaim. "But the market conditions require us to be 100 percent compliant."
 
While OPEC's first priority is to put a floor under a near-$100 collapse in oil prices to $55, Saudi Arabia for the first time in years identified a "fair" price -- $75 a barrel.
 
"There is a good logic for $75 a barrel," said Saudi Oil Minister Ali al-Naimi.
 
"You know why? Because I believe $75 is the price for the marginal producer. If the world needs supply from all sources, we need to protect the price for them. I think $75 is a fair price."
 
That target will serve as a reference point for traders when world oil demand starts to emerge from the current recessionary slump.
 
But for now, the oil market is focused on whether OPEC can prevent prices falling further and avoid the sort of divisions
that have driven prices lower during economic downturns.
 
"$75 a barrel doesn't look doable in the short term," said analyst Raja Kiwan of PFC Energy. "Given the fractious nature of
OPEC on quota compliance, they may have some problems."
 
Delegates said Riyadh and its Gulf neighbours Kuwait and the United Arab Emirates wanted to be sure others in the 12-member cartel were sharing the burden of the reductions before committing to further restraints.
 
One delegate identified Iran's efforts as a particular source of concern.
 
Naimi said that Saudi Arabia's compliance with its share of the combined 2 million barrels a day (bpd) of cuts agreed in September and October was "very high".
 
Saudi-owned al-Hayat newspaper quoted an OPEC source as blaming a lack of restraint by some other countries for having "a negative effect on oil prices."
 

OPEC may need to make larger cuts to balance the decline in demand among Western economies that has caused inventories to swell.
 
"The bottom line is that they need to cut again and they need to cut substantially," said Gary Ross, CEO of consultancy PIRA Energy. "Demand is falling out from beneath them."
 
Naimi said he would like to see inventory cover among OECD industrialised nations down to 52 days from current levels of 55-56 days of forward demand.
 
"Some of us cannot sell our crude," said OPEC President Chakib Khelil.
 
OPEC has a mixed record of dealing with downturns in the economy that curb energy demand.
 
In 2001 it successfully removed 5 million barrels daily in four stages, 19 pct of its supply, to lay the foundation for a 6-year boom in oil prices that culminated this summer in a record $147 a barrel.
 
But in 1997 in Jakarta, at the start of the Asian financial crisis, Saudi pushed through an OPEC increase after Venezuela openly flouted its cartel supply quota by a large margin. Prices went into a 18-month tailspin to less than $11 by early 1999.

Evidence so far this time suggests good if not excellent adherence with last month's 1.5 million bpd cut effective from
Nov. 1, OPEC's biggest one-time cut since 2001.
 
Tanker-tracking consultancy Petrologistics estimated last week that, based on exports, OPEC output would fall by 1.22 million bpd in November.  

But the Petrologistics figures showed that nearly half of that reduction had been shouldered by Saudi Arabia, whereas Riyadh accounts for only a third of OPEC output allocations.

Date created : 2008-11-29

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