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Posted: 9/24/2001 4:45:24 PM EDT
OPEC Flummoxed as Oil Boom Evaporates By Richard Mably and Tom Ashby Reuters VIENNA, Austria (Sept. 24) - OPEC was powerless to prevent a collapse on world petroleum markets on Monday that appears to spell the end for a two-year boom in oil prices engineered by the cartel. Hands tied by political loyalties after the September 11 suicide attacks, OPEC's big Gulf Arab producers now face the harsh realities of an economic downturn that is stemming demand for their exports. Organization of the Petroleum Exporting Countries ministers, arriving for a Wednesday meeting, watched helpless as crude slumped by 13-15 percent. London Brent finished $3.43 lower at $22.01 a barrel and U.S. light crude lost $3.96 at $22.00 a barrel. The declines were the biggest one-day losses since the Gulf crisis 10 years ago. U.S. demands for cooperation in the wake of the assaults make it nigh on impossible for OPEC's most influential member, Saudi Arabia, to support any early action to prop up prices. Riyadh, the biggest U.S. oil supplier, has pledged full support to help provide intelligence to Washington on Saudi-born Osama bin Laden, suspected mastermind behind the attacks. "It's a very delicate time at the moment but we're all working to maintain price stability," OPEC Secretary-General Ali Rodriguez told Reuters from OPEC headquarters in Vienna. "The signs for the global economy are not at all encouraging." A tottering U.S. economy and Washington's request for help in a crisis makes it very difficult for OPEC this week to consider more supply cuts to put the heat back under oil. And dealers appear to have lost confidence in OPEC's ability to defend its central $25 a barrel price target, sustained this year by three output reductions. "The weight of economic decline is just too great," said Gary Ross of New York's PIRA Energy consultancy. "Sentiment has collapsed and the market is testing OPEC. Does it have any more bullets left in the gun? I doubt it." KUWAIT SIGNALS LOWER PRICE TARGET Kuwait, a Gulf Arab state close to Washington, signaled its willingness to assist in U.S. efforts to bolster its failing economy with lower oil prices.
Link Posted: 9/24/2001 4:46:04 PM EDT
[Last Edit: 9/24/2001 4:51:52 PM EDT by ArmdLbrl]
"We understand the situation with the world economy and we will be supportive," said Kuwaiti Oil Minister Adel al-Subaih on his arrival in Vienna. He said Kuwait would be comfortable with prices for a basket of OPEC crudes at $22-$25 a barrel -- at the bottom end of the group's long-standing target range of $22-$28. OPEC has yet to surrender that range, but in one day's trading prices already are lower -- Monday's slump values OPEC crude at about $20 -- and there appears little producers can do about it for now. Brent now has fallen 20 percent, from $27.45 a barrel prior to the attacks, as dealers adjust to the threat of recession and chances recede of a U.S. military retaliation that would involve the disruption of Middle East oil supplies. "OPEC's position has weakened significantly, even for trying to defend $22 oil," said Nauman Barakat of ABN Amro bank in New York. "Prices could be heading back toward the long-term norm of $18 for Brent and $20 for U.S. crude." "We can't possibly announce more output cuts in the current economic and political climate," said one OPEC delegate. Whether price hawks like Iran and Libya agree with that line remains to be seen -- the price slide will provide as severe a test of OPEC unity as any since crude collapsed in the winter of 1998-1999. OPEC's latest reduction took effect this month, lopping off a million barrels daily to take limits for 10 OPEC nations with quotas, excluding sanctions-bound Iraq, to 23.2 million bpd. LEAKAGE On Wednesday it appears to have little choice but to leave that policy in place and make a ritual call for tighter adherence with existing output quotas. Further output cuts now, politically difficult, would in any case make little difference. Dealers are unlikely to take them seriously because the group has yet to reduce supply anywhere near its current output target. With high volumes of spare capacity, member countries have been leaking extra supplies to a market that in the immediate aftermath of the U.S. attacks feared for security of supply. Estimates by consultants who monitor OPEC supply are that the OPEC 10 is pumping some 1.3-1.4 million bpd in excess of official quotas in September, compared to oversupply of about 900,000 bpd in August. "They're only about half way to cutting the million in September and of course they were already leaking close to a million in August," said one leading consultant who tracks OPEC exports. "Only two countries are really complying, Venezuela by design and Indonesia by default." 17:02 09-24-01 Copyright 2001 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. All active hyperlinks have been inserted by AOL. [i] This is a new one. They scare the bejezus out of the US so people stop buying oil products- and now they are loosing billions. And its only been two weeks! Could this be a tool we could use in the future against them?[/i]
Link Posted: 9/24/2001 4:58:59 PM EDT
Ha! Entropy in action. This is why planned economies always fail--no one can predict the future. The OPEC cartel is a bunch of rich control freaks who have the pride to believe that they can shape the world. Sometimes, the world throws them a curve. Now if we could just get our own politicians to understand this simple reality.
Link Posted: 9/24/2001 5:02:48 PM EDT
Link Posted: 9/24/2001 5:35:07 PM EDT
I'm sure we'll NEVER see the pump prices come down though... They skyrocket immediately during a crisis, but never fall when demand lags behind... Funny how that works...
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