OPEC to try again to lift oil prices

CAIRO, Egypt — OPEC oil ministers on Friday downplayed expectations of, but didn't dismiss outright, an immediate output cut as they faced a third test in as many months of their ability to engineer a rebound in oil prices.

The outcome of the hastily convened Cairo meeting today, billed as a consultative gathering to assess the impact of earlier production cuts, probably will hinge on a key issue with which the cartel has had a checkered past: unity.

Kuwaiti oil minister Mo hammed Al-Aleem told reporters in Cairo that while the market was oversupplied, he believed there was "no need" for the Organization of Petroleum Exporting Countries to decide on cuts ahead of its regularly scheduled Dec. 17 meeting in Algeria.

But Rafael Ramirez, oil minister for price hawk Venezuela, later said the option remained to cut production by "at least 1 million barrels" at the weekend gathering. "Maybe it's necessary, a new cut," Ramirez said. He quickly added, though, that such a decision could be taken now or next month.

The diverging takes highlighted the difficulty of the task facing producers of almost 40 percent of the world's oil.

"There is total confusion" among OPEC's 13 members, said Fadel Gheit, managing director of oil and gas research at Oppenheimer & Co. in New York. "These people … really have no business model. They basically thrive when oil prices go up, and now they are crying uncle when prices go down."

And, down they have gone, in a financial avalanche triggered by demand destruction, itself sped along by a world financial meltdown that also threatens to cut deeply into OPEC member states' government budgets.

Whereas crude stood at about $147 a barrel in mid-July, it now hovers about $90 lower. On Friday, the U.S. benchmark West Texas Intermediate crude for January delivery was trading down about $3 per barrel at about $51.

"They (OPEC) simply don't react quick enough, and prices keep going down," said Vincent Lauerman, OPEC expert and president of Calgary, Alberta-based consultancy Geopolitics Central.

This meeting will come down to what kingpin and traditional price dove Saudi Arabia wants, he said.

Saudi oil minister Ali al-Naimi told reporters that answers would come today.

Cut didn't prop prices

The cartel has held one emergency meeting — Oct. 24 in Vienna — to try to halt the slide in prices with an announcement of a 1.5 million barrel per day drop. It failed to support prices, and the cartel cobbled together the Cairo gathering on the sidelines of the Organization of Arab Petroleum Exporting Countries' meeting.

But members have been circumspect about expectations, leading some to speculate that OPEC is staying quiet to maintain the element of surprise.

"As long as they do a substantive cut, they may be getting ahead of the curve, and should be cutting enough to get ahead of demand destruction," said Lauerman, citing 1 million to 1.2 million as the magic number.

That has been the figure most readily cited by those nations proposing cuts, including Venezuela, which, like fellow price hawk Iran, needs crude of about $90 per barrel to meet spending needs aimed in part at propping up its domestically unpopular regime.

The two have found support from non-OPEC oil giant Russia. Its president, Dmitry Medvedev, said Thursday that his country would cooperate with the group to support prices.

Lost revenues feared

Other OPEC members, such as Nigeria and Ecuador, face budget problems, too, making them reluctant to implement more cuts that might shrink revenues further.

Nigerian envoy Odein Ajumogobia said the ministers were "just going to exchange ideas and views" at today's gathering.

Kuwait's al-Aleem said existing low prices benefit neither consumers nor producers and could undercut investments in future projects — a scenario that could lead to another spike down the road.

"We think a decision could be taken, but I think it will happen in Algeria," he said.

OPEC's last round of cuts would put its total production at about 30.5 million barrels per day, according to the IEA.

Unlike many of their fellow members, the Saudis are better positioned to cope with the drop in prices. The International Monetary Fund estimates that Riyadh needs crude in the range of about $50 per barrel for 2008 fiscal accounts to break even.

Saudi Arabia is a close U.S. ally in the Middle East, and is eager to see concerted Washington backing for peace efforts in the region.

One way of winning new support from the incoming administration of U.S. President-elect Barack Obama would be by tacitly working to undercut two of Washington's most strident foes, Venezuela and Iran. It would not be an onerous job for the Sunni Muslim Saudis, who have no great affection for Shiite Iran.

"Saudi Arabia is playing ball with the U.S.," Gheit said. "It is going to punish Venezuela. It is going to punish Russia. It is also going to curtail Iran."

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