The Organization of Petroleum Exporting Countries has reached a consensus on proceeding with a production cut at its meeting this week-but not one on how much to cut.
Meantime, Qatari Minister of Energy and Industry Abdullah Bin Hamad Al Attiyah has called on OPEC to cut production at least 2 million b/d in order to stabilize crude prices in the second quarter. And Indonesia has called for a cut of 1.5 million b/d.
In addition, OPEC's new president has urged OPEC members to proceed with cuts ahead of the Jan. 17 OPEC meeting in Vienna, in order to rally slumping oil prices, and suggested the impending cut would be about 1-1.5 million b/d.
The 11-member organization increased its collective production four times last year to cool overheated crude prices. Since the sudden downturn in prices-a drop of about $10/bbl since last year's peak in the fourth quarter-several oil ministers of OPEC states have declared the need to cut production at the ministerial meeting.
How much to cut?
New OPEC Sec. Gen. Alí Rodríguez Araque on Jan. 4 acknowledged there is "total consensus" among OPEC member states to slash production in an effort to prop up destabilized oil prices, but he said that the volume to be cut from supply had yet to be agreed.
Several formulas-ranging from a "straight cut" to a cut that would function as "a kind of test" of the crude market-were being studied, he said, in the runup to OPEC's upcoming meeting. He said ministers were currently leaning toward a straight cut.
"Everything indicates that it will be necessary to make a cut, but the amount is difficult to predict, as it must be decided upon unanimously among OPEC members," he added.
Rebound in stocks
Rodríguez stressed that the recent fall in oil prices was "fundamentally the result of growing world crude inventories," which had resulted from overproduction of some 2 million b/d during April-September 2000 and by around 1.4 million b/d after September.
"In addition to that phenomenon," Rodríguez added, "another has emerged that is not so new but has had particular relevance over the past year, which is the building of secondary and tertiary inventories that do not appear in official statistics but which increases the volume of inventories."
Rodríguez suggested that if OPEC were to agree to cut production, it was "highly likely" that non-OPEC producers, including Mexico, Oman, Angola, and Russia, might follow suit.
"Now Kazakhstan also has expressed its position in favor of continuing to collaborate with OPEC policies," he said.
He noted that he and outgoing OPEC Sec. Gen. Rilwanu Lukman were scheduled to meet early last week with US Energy Sec. Bill Richardson to discuss the current state of play in the world's crude market. Mexico's new oil minister, Ernesto Martens, was also slated to meet with his Venezuelan counterpart last week.
Qatari, Indonesian views
Al Attiyah last week said a cut of 2 million b/d would be needed to offset an expected 2 million b/d drop in global oil demand in the second quarter.
He said, "OPEC should cut production by 2 million b/d or more to maintain prices within the range set by its price mechanism of $22-28/bbl." He added that a decision to reduce output should be taken "as soon as possible [because] delaying the move would lead to more pressure on prices."
Al Attiyah also urged continued cooperation between representatives from OPEC states and non-OPEC oil producing nations.
"It is premature to assume that non-OPEC producers will not cooperate in fresh production cuts," he said.
Indonesian Energy and Mineral Resource Minister Purnomo Yusgiantoro said OPEC ministers should cut overall output up to 1.5 million b/d at the next ministerial meeting.
"Our position is clear in that we are going to propose at the meeting an oil production cut [of] 1-1.5 million b/d," Yusgiantoro said at a press conference last week in Jakarta.
New OPEC president
Chakib Khelil, the new OPEC president, on Jan. 5 forecast world oil demand would drop as much as 1.3 million b/d in the first quarter.
Speaking at a press conference, Khelil, Algeria's energy and mines minister, said that, because crude supply is outpacing demand by 1.4 million b/d, the organization's 11 ministers "would go for a cut of 1-1.5 million b/d" when they meet in Vienna, in order to stabilize oil prices at around $25/bbl.
Khelil added that OPEC would also decide whether to hold an extraordinary conference before Mar. 1 to monitor the oil price situation, but only "if the market needs a decision."
He urged the 11 OPEC member states not to wait until the Jan. 17 ministerial meeting before cutting production to bolster oil prices.
Khelil said that OPEC's price band mechanism-designed to trigger adjustments to output when the oil price moves outside its desired $22-28/bbl range for more than 20 days (OGJ Online, Apr. 10, 2000)-should determine when a cut in output is made.
Khelil said a production cut could be triggered if prices remained below the set level for 10 trading days in a row. If this should happen before the upcoming meeting in Vienna, said Khelil, the meeting could provide an occasion to "analyze the situation and decide whether any further cuts were necessary."
Khelil was appointed to his post in November after Rodríguez, then the OPEC president, was selected to be secretary general.
