OPEC expected to keep crude output steady as signs of recession increase
LONDON (AP) – Terror attacks on the United States together with fears of a dramatic slowdown in the global economy create a backdrop of uncommon urgency for OPEC oil ministers meeting this week to review their crude production quotas.
As suppliers of almost 40 percent of the world’s oil, members of the Organization of Petroleum Exporting Countries have the power to help shore up the buckling global economy – or speed its descent into recession.
Stakes are high for Wednesday’s meeting in Vienna, Austria – a meeting some OPEC delegates and energy analysts had earlier envisioned as routine.
In the wake of the Sept. 11 attacks on New York and Washington, some analysts believe OPEC members might discuss reversing this month’s cut in output of 1 million barrels a day – though the cartel is likely just to renew its existing quotas.
”OPEC doesn’t need to do anything. What OPEC should avoid doing now is to cut production to get prices back up again. If they did, they would make a recession worse,” said Leo Drollas, chief economist of the Center for Global Energy Studies in London.
OPEC has a production target of 23.2 million barrels a day, after having slashed its official production this year by a total of 3.5 million barrels a day in an effort to keep prices firm.
In the wake of this month’s terror attacks, the United States, the world’s most voracious oil importer, is leaning on OPEC to keep prices and supplies stable.
Energy Secretary Spencer Abraham met last Sunday in Vienna with OPEC Secretary-general Ali Rodriguez to convey President Bush’s hope that the group would take no action that would drive up prices or threaten supplies should the United States retaliate for last week’s terrorist attacks.
Within hours of those attacks, Rodriguez had declared that all OPEC member countries were committed to ”continuing their policy of strengthening market stability and ensuring that sufficient supplies are available to satisfy market needs.”
He ”categorically refuted” the idea that some OPEC members might try to use their oil exports as an economic weapon.
Some observers have suggested that Iraq or Iran – OPEC members and longtime adversaries of the United States – might try to withhold exports to the West if the U.S.-led coalition attacks targets in Afghanistan, where Osama bin Laden, the main suspect in this month’s terror attacks, was believed to be hiding.
Drollas said he foresaw no such supply risk, so long as any fighting was contained within Afghanistan.
”If it boils over into Iraq or Iran then that might create a supply problem,” he said.
Oil prices spiked to more than $31 a barrel after hijacked airliners plowed into the World Trade Center and Pentagon. Prices eased later.
Front-month futures contracts of Europe’s benchmark crude, North Sea Brent, finished trading Friday at $25.44 a barrel, down 18.1 percent from a Sept. 11 high of $31.05. Contracts of light, sweet crude for November delivery closed at $25.97 on the New York Mercantile Exchange, which closed immediately after the attacks on the World Trade Center.
OPEC’s own benchmark – the average price for a so-called basket of seven crudes – was $24.51 a barrel on Thursday, the most recent day for which the group compiled information.
Demand for crude typically intensifies in the autumn, as refiners in the northern hemisphere stock up to produce heating oil for winter.
”We were originally thinking that OPEC might raise production out of concern for the global economy. However, Saudi Arabia has recently said that they might not need to if demand falls like it appears to be doing,” said Jay Saunders, an energy analyst with Deutsche Bank in Baltimore, Maryland.
Saudi Arabia, OPEC’s biggest and most influential producer, pumped nearly 7.9 million barrels a day in August, according to the Paris-based International Energy Agency.
Peter Gignoux, head of the petroleum desk at Salomon Smith Barney in London, noted that Saudi Arabian Oil Minister Ali Naimi recently reassured markets that his country would help ensure adequate supplies of crude.
However, both Naimi and Rodriguez stopped short of pledging to boost production at this week’s meeting. Like their colleagues, they are haunted by the consequences of OPEC’s decision in December 1997 to increase production – just prior to a financial crisis in Asia that sent oil prices plummeting a year later to $10 a barrel.
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