OPEC chief calls for cooperation to stave off oil price collapse

Nov. 26, 2001
A collapse of world oil prices is likely unless both producers and consumers take measures to stabilize the market now, said Sec. Gen. Ali Rodríguez Araque of the Organization of Petroleum Exporting Countries.

By the OGJ Online Staff

HOUSTON, Nov. 26 -- A collapse of world oil prices is likely unless both producers and consumers take "adequate measures" to stabilize the market now, said Sec. Gen. Ali Rodríguez Araque of the Organization of Petroleum Exporting Countries.

Addressing delegates from the US Energy Council in Vienna, Rodríguez said Monday the sharp drop in oil market prices since Sept. 11 is already curtailing industry investments and forcing producers to shut in wells in many countries. He blamed a drastic reduction in world demand for oil, coupled with a build-up in world oil inventories from increased non-OPEC production.

The average price for OPEC's basket of seven crudes dropped 19¢s to $17.71/bbl Friday. For the full week, however, OPEC's basket price averaged $16.87/bbl, down from $18.43/bbl the previous week.

That price has remained below OPEC's target level of $22-28/bbl since Sept. 24. So far this year, the OPEC basket price has averaged $23.72/bbl., compared with averages of $27.60/bbl for all of 2000 and $17.47/bbl in 1999.

In three moves earlier this year, OPEC members reduced their production quotas by a total 3.5 million b/d in a fruitless effort to shore up falling oil prices. However, non-OPEC producers increased production by 500,000 b/d to capture some of OPEC's former market share. Russia accounted for most of that increase, officials said.

At their recent meeting in Vienna, OPEC ministers agreed to reduce production quotas by another 1.5 million b/d in January, but only if major non-OPEC producers also curb their output by 500,000 b/d.

The combined cuts of 300,000 b/d offered so far by Russia, Norway, Mexico, and Oman is "insufficient," said Rodríguez.

Although Russia has increased its proposed curtailment of oil exports to 50,000 b/d from 30,000 b/d initially, the offer still falls far short of what OPEC is demanding.

OPEC members such as Saudi Arabia, the world's biggest oil producer, have threatened a price war that would drive down oil prices and trash Russia's economy if it does not support the cartel's efforts to reduce production and shore up prices.

Still, Rodríguez expressed hope Monday that such meetings with the US Energy Council would produce "a workable solution" to unstable world oil markets.

Adnan Shihab-Eldin, OPEC's director of research, told the group that if the cartel can enlist cooperation from non-members in reducing oil production and can get a favorable oil tax regime from consuming countries, world oil prices could return to the level of $20-25/bbl.