November 20, 2008 - OPEC ministers will meet in Cairo on November 29, a month after their October 24 meeting in Vienna and less and less than three weeks ahead of their December 17 meeting in Oran, western Algeria, to see what they can do to halt the precipitous decline that has seen oil prices decline from record highs of more than $147/barrel in July to less than $50/b. (See table of OPEC production cuts and new targets.)
The emergency talks are being billed by OPEC as a "consultative" session that does not have normal meeting status. Few ministers, however, are ruling out the possibility of a decision to cut crude output again on top of the 1.5 million b/d cut agreed at emergency talks in Vienna on October 24 and implemented on November 1.
North Sea Brent crude futures plunged to $48.20/b on November 20, their lowest level for more than three years. US light crude futures in New York tumbled to $49.75/b.
Ongoing fallout from the global financial crisis has rocked equity markets but has pushed the US dollar up to levels last seen in April 2006. Just as a weak US dollar was credited with helping drive commodity prices higher earlier this year, a firmer dollar--which increases costs for net importers of commodities--has helped pull the floor out from under futures markets.
Since OPEC president Chakib Khelil said on November 13 that he had called an emergency meeting in Cairo--where OPEC's Arab oil ministers will be attending the scheduled meeting of the Organization of Arab Petroleum Exporting Countries--expectations from ministers and delegates has been mixed.
Khelil himself has made conflicting comments, on November 14 suggesting that OPEC's Cairo talks could "maybe take the necessary actions to stabilize the market ahead of the OPEC meeting on December 17 in Oran."
Five days later, however, Khelil downplayed the likelihood of a Cairo decision on a new output cut, though he said the group might come up with recommendations for December 17 meeting in Oran. He said it would be pointless to cut supply again in Cairo if the 1.5 million b/d reduction that had come into effect less than three weeks before had not been implemented by all members.
"If we have not fulfilled our commitment to the 1.5 million b/d reduction, and we decide on another supply cut, OPEC will not be credible," he said, adding that oil prices had continued to fall even after the November cut was announced "because the market has still not accounted for the reduction."
The Oran meeting will be a decisive one, Khelil said. "Then, we will have information on real demand and the consequences of the reduction on the market, which has not yet been felt."
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Kuwait's official news agency KUNA on November 18 quoted informed sources at OPEC's Vienna secretariat saying OPEC would discuss several options in Cairo, including whether to cut production by 1 million b/d or 1.5 million b/d immediately or wait until Oran. Any action will depend on whether markets stabilize and whether the slump in oil prices is halted, KUNA quoted the sources as saying.
The 1-1.5 million b/d figure mooted by KUNA has already been mentioned by Iran's OPEC governor Mohammad Ali Khatibi, who said on November 16 that this was the volume that needed to be cut in order to remove the oversupply from the market and stem the slide in oil prices.
Some ministers and officials have argued that OPEC should give the existing cut time to work its way through to the market before deciding on an additional reduction.
OPEC Secretary General Abdalla el-Badri said on November 17 Monday that it was premature to talk about a further cut in Cairo, although he said oil markets were oversupplied with crude.
The International Energy Agency on November 13 made big downward revisions to its forecasts of demand for OPEC crude in the fourth quarter of this year and in 2009 on the back of reduced global oil demand.
It now sees demand for OPEC crude in the last quarter of 2008 at 31.1 million b/d, 600,000 b/d less than previously forecast and around 1 million b/d below the group's estimated October production of 32.13 million b/d.
For 2009, the IEA sees demand for OPEC crude averaging 30.4 million b/d, even further below current output levels.
OPEC's own secretariat in Vienna is less pessimistic than the IEA, on November 17 estimating demand for crude produced by its members at 32.07 million b/d in the fourth quarter of this year and at 30.92 million b/d in 2009, 290,000 b/d and 220,000 b/d less than forecast in October.
"In the current extremely volatile situation, closer monitoring and more frequent intervention are required," OPEC said in its Monthly Oil Market Report. It said it would continue to follow oil market developments carefully ahead of the Oran meeting and stood "ready to take the necessary decisions to support oil market stability."
The Centre for Global Energy Studies, a London-based think-tank founded by former Saudi Arabian oil minister Ahmed Zaki Yamani, said on November 18 that oil prices would continue to slide until OPEC made real cuts in crude output or high-cost non-OPEC production was shut in.
While the IEA and OPEC see some, albeit reduced, growth in world oil demand in both 2008 and 2009, the CGES believes demand will actually fall in both years because demand growth in Asia, Latin America and the Middle East will be unable to offset the continuing demand decline in OECD countries.
The CGES said its pessimism about oil demand was offset to some extent by its even more pessimistic view of non-OPEC supply, which it believes is unlikely to show any real growth either this year or next.
"OPEC's call for support from Russia, Mexico and Norway in cutting production is already being delivered, albeit involuntarily, with production falling year on year in all three countries," it said.
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