Oil Prices Dive in Wake of Failure by OPEC to Trim Back Production
Prices on world oil markets fell sharply Monday after the Organization of Petroleum Exporting Countries conference ended with no agreement on a proposed 2% cut in the group’s production.
On the New York Mercantile Exchange on Monday, West Texas Intermediate oil, the U.S. benchmark crude, dropped 85 cents a barrel to settle at $17.14. Prices for refined products also slid.
But the oil ministers of Saudi Arabia and Kuwait said they expected world oil prices to stabilize near current levels, despite the breakdown of the OPEC meeting.
Asked by reporters if he thought prices would fall further in response to the stalemate, Saudi Oil Minister Hisham Nazer said: “I don’t see why. I see (market) fundamentals improving.”
He was referring to projections that oil demand in the main industrialized countries will pick up this summer, relieving some of the downward pressure on prices.
Nazer also said he was optimistic about gaining more cooperation from non-OPEC oil exporters, including American oil-producing states.
“The oil states in the United States are very, very much interested in the stabilization of the market,” he said.
Kent Hance, a member of the Texas Railroad Commission that regulates that state’s oil industry, held talks with Nazer and other OPEC officials last week in Vienna.
Hance told them Texas wanted to “open a dialogue” with the oil cartel, despite Washington’s refusal to take such a step.
Sanford Margoshes, analyst at Shearson Lehman Hutton Inc. in New York, said Monday’s selling binge was not as severe as expected following the $3-a-barrel surge unleashed by OPEC’s April 9 disclosure that it would meet with non-OPEC producers.
“We’re seeing a price correction that is very moderate and a testimonial to the underlying strength of the market,” Margoshes said. “I doubt that we’ll see a drop of more than another 50 cents a barrel from here because there’s likely to be a pickup in demand for oil on a worldwide basis.”
Nazer and Ali al Khalifa al Sabah, the Kuwaiti oil minister, said at separate news conferences that OPEC was not worried by short-term reactions in the oil market.
“Our concern is not what happened . . . on Monday or Tuesday but what happens to prices in the medium or long term,” Sabah said.
At its current oil production rate of about 17.5 million barrels a day, OPEC stands to lose $122 million a week for each $1 drop in prices.
Nazer said his government was confident that prices will stabilize near OPEC’s target of $18 a barrel in the longer term.
“We wouldn’t pay any attention to short-term gyrations,” he said.
The OPEC oil ministers had come to Vienna hoping to reach agreement with a group of six independent oil-producing nations on mutual export reductions.
The non-OPEC group--Mexico, Egypt, China, Oman, Angola and Malaysia--offered to cut exports by 5% if OPEC did likewise.
OPEC member Algeria proposed that the cartel cut its output by 300,000 barrels a day, or about 2%, in order to establish a basis for a more formal relationship with the rival producers.
But Saudi Arabia, backed by Kuwait, Qatar and the United Arab Emirates, blocked the proposal, saying OPEC should take more time to consider a response.
Cites Internal Problems
Sabah, the Kuwaiti minister, told reporters that OPEC also should clear up some internal problems before deciding on new methods of cooperation with other producers.
He said the lack of agreement within OPEC on such technical issues as how to ensure compliance with oil production quotas made any new agreements on production cuts meaningless.
“We all realized that the extent of the problem is much greater than just cutting” output now by a token amount, he said.
He said an OPEC committee would study the technical issues before the next ministerial conference, set for June 8.
Also, a separate OPEC committee of five oil ministers is to hold bilateral and group meetings with the six non-OPEC countries before June, he said.
