By the OGJ Online Staff
HOUSTON, Oct. 25 -- The scheduled meeting Monday of members of the Organization of Petroleum Exporting Countries with representatives of four key non-member oil producing countries will be a "brainstorming forum" on how to halt the sharp plunge of oil prices, the cartel's chief executive said Thursday.
OPEC Sec. Gen. Ali Rodriguez Araque said the world oil market is impacted primarily by a general downturn in the global economy, with Asia already in recession before the Sept. 11 terrorist attacks in the US, which increased market uncertainties.
But Nordine Ait-Laoussine, former energy minister for Algeria, said the market also suffered a "psychological" impact as a result of OPEC's failure to defend its targeted price range of $22-$28/bbl for its oil.
Its hesitance to cut oil production after its basket price plunged $3.47 to $20.51/bbl on Sept. 24 marked "a beginning of a loss in OPEC credibility," said Ait-Laoussine in an interview Wednesday with the French newspaper Le Matin.
Unless OPEC members take decisive action or world oil supplies are otherwise disrupted, he said, petroleum prices would continue to fall.
On Sept. 24, international energy markets experienced the biggest 1-day drop in prices since the US and its allies started the Desert Storm attack on Iraq in 1991. At the time, Paul Horsnell with JP Morgan Securities Inc., London, described it as "a direct challenge to the (OPEC) price band" by speculators who assumed key OPEC members such as Saudi Arabia and Kuwait would be pressured by US government officials not to reduce oil production while the US takes military action against Osama bin Laden and his terrorists (OGJ Online, Sept. 25, 2001).
OPEC members previously agreed to consider adjusting their production if their average basket price remained outside their targeted range for 10 trading days.
As of Wednesday, the OPEC basket price was down to $18.97/bbl, having remained below the group's official floor price for 31 days. That has sharply reduced revenues OPEC nations rely on.
Many analysts still say it will be hard for OPEC to resist political pressure from the US and other industrialized nations to maintain production. Moreover, many expect any reduction in OPEC's output will be filled by non-OPEC production, causing the cartel to lose market share.
However, Venezuelan President Hugo Chavez has indicated OPEC members Saudi Arabia, Algeria, Libya, and Iran would agree to a cut of 1 million b/d of oil if non-OPEC countries will also reduce production (OGJ Online, Oct. 24, 2001).
OPEC ministers are scheduled to meet next week with representatives from Russia, Mexico, Oman, and Kazakhstan.
Rodriguez said, "OPEC has not abandoned its price band mechanism." However, he said OPEC members should not have to shoulder alone the responsibility of stabilizing the world oil market.
Ait-Laoussine sees little chance that non-OPEC countries will reduce their oil production at current price levels. He claims OPEC members must act alone.
Rodriguez remains optimistic that the oil market will recover. "Recession is a short-term phenomenon. I don't think it is going to be for long," he told the OPEC news agency.
