Title: 'Deteriorating' market prompts OPEC meeting
Byline: Staff reports
Section: Pg. 1 Vol. 86 No. 197
Length: 993 words
Link to relevant WorldOilNews blog posting here.
OPEC on October 9 confirmed plans to hold an emergency meeting November 18 in Vienna to discuss the financial crisis and its impact on oil.
The oil producer group's Vienna secretariat issued a statement noting "growing unease" over the turmoil in world markets, and said it was determined "to ensure that oil market fundamentals are kept in balance and market stability is maintained."
OPEC last met on September 9, when it left official limits unchanged at 29.673 million b/d but agreed to rein in oversupply. It had not been due to meet again until December 17 in Oran, western Algeria.
On September 9, front-month crude closed at $103.26/barrel on the New York Mercantile Exchange. On October 9 it settled at $86.59/bbl.
OPEC's statement gave no indication as to what action the producers' club might be considering, but Qatari oil minister Abdullah al-Attiyah, the group's longest serving minister, said in a television interview October 9 that a supply cut might be considered amid falling demand for crude oil as a result of the global economic meltdown.
"Of course there will be a study of supply and demand and if we see that supply is more than demand, of course OPEC will take action to cut supply so that there is balance between supply and demand," Attiyah told Dubai-based al-Arabiya television in an interview.
He said OPEC had agreed at its September meeting to adhere more strictly to output targets and trim excess supply, which he put at around 550,000 b/d, amid signs of falling demand for crude oil.
OPEC will discuss the market situation at the November 18 meeting and "formulate a plan to be implemented to restore balance between supply and demand" in view of the current global financial crisis, Attiyah said, adding that he believed the crisis had not been played out fully.
"I believe this is the beginning and not the end of the current crisis. We will have to reach rock bottom before the situation can be fixed," he said.
The statement by OPEC said the organization "is concerned about the deteriorating economic conditions with contagion risks. The subprime mortgage problems that have been observed for a long time have created a shock wave in financial institutions resulting in huge losses, and escalating credit squeeze which has turned into a deep financial crisis."
"The continuing turmoil in the financial market has spread to many regions and created even more uncertainties for the world economy," it said. "Amid growing unease over this situation, [OPEC] has decided to hold an extraordinary meeting...on Tuesday, 18 November 2008, in Vienna to discuss the global financial crisis, the world economic situation and the impacts on the oil market."
Meanwhile, Venezuela wants OPEC to adopt a system of price bands to prevent wild movements in oil prices, a top government official said October 9.
Bernardo Alvarez, Venezuela's ambassador to the US before he was expelled last month amid a diplomatic spat, said in an address before Venezuela's National Assembly that the country will make the proposal to OPEC.
He said the sharp drop in oil prices since July should worry not only producers, but the whole oil-consuming world because exploration, production and financing of oil activities can become compromised by a sudden decline in prices.
"The idea is that a bands system is set up, that is the Venezuelan proposal. Even when (oil) prices rose well above $100/barrel, president (Hugo Chavez) said $100 was a fair price," Alvarez told reporters after the address. "So, I think we should do it somehow, managing supply and demand, bringing consumers and producers together."
Amid the growing global financial crisis, "we need to impose some order" in international financial circles and a system of price bands will achieve just that, said Alvarez, without giving more details on the plan.
OPEC had in place a price band of $22-$28/barrel, but formally abandoned it in January 2005.
Libya's top oil official, Shokri Ghanem, said a day earlier when news that an extraordinary meeting was on the cards that it was difficult at this point to predict what action OPEC might take at the November meeting, but that "all options" were open to the group in its efforts to stem a fall of more than $60/barrel in oil prices since they peaked at record highs above $147/b this summer 8 (ON 10/9). OPEC's own basket of crudes stood at $77.38/b October 8.
"It all depends on what happens from now till the conference. We have to see what is happening in the market, whether it firms up, decelerates or rebounds," Ghanem said. "We are very concerned because the market is crazy and there are so many factors and we have to see what are the reasons for the deterioration [in oil prices]."
Iran's oil minister Gholamhossein Nozari said last weekend that world oil markets were already oversupplied to the tune of 400,000 b/d and that this volume could triple to 1.2 million b/d early next year. He said an oil price below $100/b served neither producing nor consuming countries.
The US Energy Information Administration said this week it expected the price of US West Texas Intermediate crude to average $111.57/b this year, $4.43/b lower than its September forecast. The EIA also cut its 2009 price forecast: it now sees WTI averaging $112/b next year, $14.50/b down from the $126.50/b forecast in September.
The International Monetary Fund said October 8 it expected oil prices to remain around $100/b in 2009 despite a major downturn in the global economy, provided there are no further supply shocks or further major downward revisions in world economic growth.
"With inventories low and spare capacity limited, and with very low short-term supply-and-demand price elasticities, commodity prices have become highly sensitive to news about possible supply disruptions," the IMF said in its World Economic Outlook.
The IMF warned that markets were likely to remain volatile, "responding quickly to shifting perceptions of demand and supply.
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