By the OGJ Online Staff
LONDON, Jan. 2 -- The honeymoon between oil traders and the Organization of Petroleum Exporting Countries (OPEC) appears to be over, with prices falling again Wednesday on the London International Petroleum Exchange.
Brent contracts for February settlement fell by 44¢, or 2.2%, to $19.46/bbl. Brent, the benchmark crude for two-thirds of the world's oil, lost 17% last year, although it ended the year above $20 following OPEC's latest output quota agreement in cooperation with non-OPEC producers.
London traders who deal on the New York Mercantile Exchange's out-of-hours electronic trading system were buying West Texas Intermediate (WTI) crude contracts at $19.72, down 12¢.
The reason for market nervousness, said one trader, are fears that OPEC will not be able to police its new agreements. During 2001 OPEC produced an average of 565,000 b/d more than its quotas allowed, and traders expect cheating to continue. A lack of compliance with OPEC's 1.5 million bbl cut may lead Russia, Norway, and other allies to abandon their reductions, traders said. They note that Norway has said its lower oil production is dependent on full OPEC compliance.
OPEC members, which produce 60% of the world's oil, agreed to reduce production on Dec. 28 to firm prices after their benchmark index fell outside the $22 to $28 price range the cartel has targeted for the past year.
That goal has now been abandoned and the cartel is striving to bring the price for its basket of seven different crude oils above $20/bbl.
In a statement regarding the new OPEC agreement, the Saudi Arabian government said both oil producers and customers favor of a price of $20-$25. Oil Minister Ali al-Naimi said, "All are convinced that the best price is between $20 and $25. Oil producers and their clients and oil companies are convinced of the necessity of achieving this price. There are no differences on this subject, but the problem remains in the putting in place of a permanent mechanism to attain this price."
He also confirmed that the OPEC price band mechanism, which was aimed at keeping oil prices between $22 and $28, has been temporarily suspended since it is not achievable.
London traders also doubt Russia's commitment to reduce oil exports. AO Yukos Oil Co., the country's second largest producer, said that it plans to increase 2002 output by 24% and increase spending by 33% on production, refining, and marketing.
