The steep slide in oil prices in the past month has revived talk of production cuts by the Organization of Petroleum Exporting Countries.
Oil prices last week remained near their lowest level in 8 months, increasing the likelihood of production cuts by OPEC members during their next meeting in January, analysts said.
Some professed surprise at the rapid drop in prices for crude last month, down some 20% since November, although OPEC members had warned that too much oil was being pushed into world markets even before their last production hike took effect in October. Investors have since bailed out of the energy futures markets in anticipation that a slowdown in the world economy will reduce demand for energy supplies in 2001.
On Dec. 26, the February contract for benchmark US light, sweet crude closed at $26.64/bbl on the New York Mercantile Exchange, a decline of more than $6 since Dec. 1. In London, the February contract for North Sea Brent crude closed at $24.04/bbl on Dec. 27 on the International Petroleum Exchange, down almost $6 on the month.
Meanwhile, one factor that had been putting upward pressure on oil prices, the United Nations stalemate with Iraq over renewal of its oil-for-food program, was settled Dec. 12, when Iraq agreed to the terms of a 6-month extension.
Kuwait, Algeria views
Kuwaiti Minister of Oil Saud Nasser Al-Sabah in mid-December raised the specter of a 1 million b/d cut in OPEC output to counter the slumping oil price.
Speaking in an interview with the Kuwaiti daily, Al-Rai-Al-Am, Al-Sabah said OPEC would study the current oil price decline in the run-up to the organization's Jan. 17 meeting in Vienna to determine if-as has been suggested by several OPEC ministers in the previous month-such a massive cut to output will be needed to avoid a price collapse in the spring.
OPECNA reported Al-Sabah as saying, "One million b/d of oil could be withdrawn from the market as a measure to face the decline in prices, especially during the spring and summer months when consumption drops and international oil demand falls."
Al-Sabah's sentiments were echoed by the Algerian Energy and Mines Minister Chakib Khelil who, in an interview with the Egyptian newspaper Al Ahram, said the prospect of a sharp drop in the oil price had ruled out the possibility of OPEC raising production again in the short term.
Khelil, the current OPEC president- designate, added that, once he took up the post next year, he would continue to work towards "instigating a strategy that [is] able to stabilize prices [at] $22-28/ bbl," the organization's so-called price band.
He also promised to "intensify transparency within the organization and its members and to better manage the group's affairs."
Wael Al-Mudhaf, the Director of the Economic Department at Kuwait's Oil Ministry, noted that current fluctuations in the oil price were the result of uncertainty brought about by the "Iraq-United Nations issue," US elections, and "reports and statements concerning the level of [global] oil stockpiles."
UAE stance
UAE Minister of Petroleum and Mineral Resources Obaid Din Saif Al-Nasseri on Dec. 12 echoed Al-Sabah in signaling that a production cut was possible in January.
But, unlike Al-Sabah-who foresees output being slashed by 1 million b/d-Al-Nasseri said it was "too early to mention specific figures" for such a reduction.
"All options are open," said Al-Nasseri. "We don't rule out any possibility of production cuts when we meet next month," stressing that any OPEC action would depend on price and crude stock levels.
Al-Nasseri said OPEC is "concerned" by a price decline that has been "very much exaggerated, as it took place in a very short period."
The potential for a collapse in crude prices in the spring, he remarked, is "possible, especially if production rates continue at their current [levels]."
"It is for the next OPEC meeting [on Jan. 17] to discuss means of avoiding a major slump, similar to that witnessed during 1998 and early 1999," the minister said, adding that he welcomed cooperation between OPEC and non-OPEC producers, including Mexico and Norway, as a means of "maintaining price and market stability."
"We are in the same boat. Our common goal is to reach a reasonable and fair price," Al-Nasseri said. "This sort of cooperation gives more credibility to the market and serves the interests of producers and consumers alike."
Iraq update
The UN Security Council had decided Dec. 5 to reinstate humanitarian aid to Iraq starting on the following day and had given the green light to a new pricing formula 2 days later, removing the sticking point that stopped Iraq from exporting some 2.2 million b/d.
Oil exports-which were to have resumed Dec. 8 but for bad weather affecting the Iraqi port of Mina Al Bakr-had been suspended for the preceding 10 days.
The new pricing formula deepened the discount at which Iraqi crude is sold to the US and Europe.
Iraq relayed its acceptance of the renewal via its foreign minister, Mohamed Said Al Sahaf, to UN Sec. Gen. Kofi Annan.
The oil-for-food program, begun in late 1996, allows Iraq to sell oil under UN supervision to buy food, medicine, oil spare parts, and other goods, as part of an initiative that aims to ease the impact of UN sanctions imposed on the country in 1990 in response to the blitzkrieg takeover of Kuwait.
