Asia Times: No end in sight for OPEC's pricing woes


	November 16, 2001	atimes.com

Global Economy

No end in sight for OPEC's pricing woes
By Andres Canizalez

CARACAS - Instead of cutting output, the Organization of Petroleum Exporting Countries should rethink its pricing strategy and do its part to boost the global economy, former OPEC president Humberto Calderon Berti says.

The price of the OPEC basket of seven crudes fell last week below US$18 a barrel, its lowest in two years. The cartel's objective is to raise prices to a minimum of $22-$23. OPEC ministers met in Vienna this week to grapple with the problem of shrinking prices, but agreed in the end that a production cut by member states would do little unless non-OPEC oil exporters followed suit. And there is little enthusiasm for that idea among non-member nations, with the possible exception of Mexico.

As well, the United States has announced that it will expand its petroleum reserves to maximum capacity, which would further weaken OPEC's grip on the market.

The OPEC ministers decided in Vienna on Wednesday that they would curb production by 1.5 million barrels a day only when petroleum exporters outside the group, such as Mexico, Norway and Russia, reduce their combined daily output by 500,000 barrels. The OPEC decision did nothing to calm an oil market that is likely to see a continued decline in consumption as a result of the decelerating global economy.

The OPEC ministers' resolution was preceded by US President George W Bush's announcement that the United States will increase its strategic reserves of crude from 155 million to 700 million barrels, its maximum storage capacity. The US decision is aimed at preventing oil shortages at home resulting from potential conflicts in the Middle East, the region that provides most of the crude the United States imports. Bush stated that current inventories are sufficient, as are those of America's allies, but that the United States was taking precautions against future interruptions in oil supplies.

OPEC has made three cutbacks in production since January in an attempt to buoy oil prices, but has not obtained clear commitments from other petroleum-exporting nations to follow suit. So far it has received just one favorable response on the matter, from Mexico's Energy Minister Ernesto Martens. He met on Monday in Madrid with his counterparts from Venezuela, Alvaro Silva Calderon, and from Saudi Arabia, Ali al-Naimi. Venezuela and Saudi Arabia, both OPEC members, have maintained informal consultations with Mexico since 1999, when oil prices plunged dramatically.

Mexico could reduce its contribution to the oil market by 75,000 to 100,000 barrels a day, but has not officially confirmed the move. A cutback of that magnitude would cost the country $1.2 million a day in petroleum revenues.

Russia, meanwhile, announced that it was willing to cut production by 30,000 barrels a day, a figure that several OPEC ministers considered "symbolic" and "disappointing", given that the daily output of the country, a leading oil producer, reaches 7 million barrels.

Norway ruled out an immediate cutback in its oil production, although it left the door open for following the OPEC lead in the future.

Venezuela would be giving up $2.4 million daily with OPEC's planned cuts, which commit the Latin American nation to reduce its output by 160,000 barrels.

Calderon Berti, who was formerly Venezuela's oil minister as well as heading OPEC, maintains that withholding crude from the international market in a bid to drive up prices is not the appropriate measure for the current situation. He says that OPEC should lower its price expectations and maintain its share of the world oil market by staking its bets on a band of $16-$19 a barrel, which would encourage energy consumption and thus give a the world economy a boost toward recovery.

Oil market expert Milko Gonzalez, of the Central University of Venezuela's Petroleum Analysis Unit, says that OPEC is already seeing its presence in the global market decline as a result of the series of production curbs implemented so far this year. Other countries have moved to fill in the gap, he says.

The oil cartel, which controls about 40 percent of the international oil market, has cut its production by 3.5 million barrels daily with the three curbs enacted in 2001. But there is still an excess supply of 1.3-1.5 million barrels daily, says Venezuela's current Oil Minister Silva Calderon.

Last year, OPEC placed 26.7 million barrels on the market daily at a price of about $30 a barrel. Prior to the announcement of the fourth cutback, daily production stood at 23.5 million barrels with prices $10 lower. The oil revenues of the 11 OPEC nations reached $800 million a day in 2000, but this year they average just $470 million.

The International Energy Agency, representing the leading consumers of the industrialized North, predicts that in 2002 average daily world consumption of crude will rise by 600,000 barrels, half the annual increase of the last few years. The forecast is based on the recession that is threatening the economies of the industrialized nations, which are also the leading oil consumers. A persistent economic contraction means that uncertainty will continue to plague the petroleum market.

Hawks in the Bush administration want an expansion of the country's "war on terrorism" - which began on October 7 with military strikes against Afghanistan - to Iraq, which is a member of OPEC. The last time the United States was heavily reliant on its own oil reserves was during the 1991 Gulf War, when the country led attacks against Iraq, which in August 1990 had invaded Kuwait, a fellow petroleum producer and OPEC member.

The 11 OPEC members are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

(Inter Press Service)