Posted on 12/11/2002 1:29:52 AM PST by Cincinatus' Wife
VIENNA -- Despite the possibility that oil supplies could be reduced by a showdown in Iraq and a crippling strike by Venezuelan oil workers, OPEC ministers are consumed with nightmares of an oversupply of crude.
As oil ministers from the Organization of the Petroleum Exporting Countries gather here for their meeting this week, the Saudis are pushing a plan to avert a possible oil price plunge next spring.
The 10 OPEC members, who supposedly agree to be governed by production quotas, have been exceeding those limits by an average 2.8 million barrels a day in November, according to the U.S. Energy Information Administration.
But all of this talk of production cuts comes at a time of crisis in both Venezuela and Iraq, whose oil exports are controlled by United Nations sanctions. Together, these two countries normally account for nearly 5.3 million barrels of crude a day, or nearly 7 percent of the world's oil supplies.
Prices jumped on the futures exchanges as trouble worsened in Venezuela and the Saudis talked about production cuts.
On the New York Mercantile Exchange, light, sweet crude for January delivery gained 55 cents to settle at $27.75 a barrel, while Brent crude at London's International Petroleum Exchange rose 66 cents to $26.42 a barrel.
In New York, the January gasoline futures contract soared 2.66 cents to 78.87 cents a gallon, and the January heating oil futures contract climbed 1.37 cent to 77.19 cents a gallon.
Saudi Oil Minister Ali al-Naimi said in London on Tuesday that OPEC is likely to agree to slash its production by 1.5 million to 2 million barrels a day, Reuters reported.
He arrived after midnight in Vienna, but did not comment publicly.
That reduction from the current group total level, which is 13 percent above the current quotas, would still mean the production limits set by OPEC would rise.
By pushing the quotas up by 1 million to 1.5 million barrels a day, OPEC would narrow the gap between production and allowable output.
Saudi Arabia, OPEC's largest producer, has been arguing the wide disparity between actual and allowable production is hurting the organization's credibility.
"Now there is a need to cut," Reuters quoted Naimi as saying, adding that most also agree on raising the ceiling.
Other members of the group have had little say on the plan.
Arriving in Vienna Tuesday, Libyan oil minister Abdulhafid Zlitni said only, "There are quite a number of scenarios that are going to be studied at this meeting."
While he was making those comments, there were things going on across the Atlantic that could change the supply picture entirely.
A skeptical Bush administration is poring over 12,000 pages of documents supposedly detailing Saddam Hussein's weapons program.
The threat of war, while perhaps not imminent, remains very much alive.
In Venezuela, President Hugo Chavez was facing off Tuesday with strikers demanding his resignation.
There were reports of long lines at banks as people fearing the worst withdrew money from their accounts as the impact of the nine-day general strike grew worse.
Before the strike, Venezuela, a major crude supplier to the United States, had been pumping about 2.9 million barrels a day.
"Right now Venezuela is out of the market, more or less," said John Lichtblau, chairman of the New York-based Petroleum Industry Research Foundation. "We don't know how long this will last ... Obviously, it can't last too much longer ... or the country would just break down."
If the strike drags on, "you could have an oil shortage," Lichtblau said. And that could force the United States to tap into its emergency oil stockpile, the Strategic Petroleum Reserve.
Because of these uncertainties, many remain skeptical OPEC will have the political will Thursday to make meaningful production cuts and raise production quotas.
"OPEC may just postpone the issue of quota realignment until its next meeting, currently scheduled for March," noted Energy Information Administration analyst Erik Kreil in a report issued Monday. "There is sufficient uncertainty now in oil markets ... for OPEC to decide to take a wait-and-see attitude before making any major policy changes."
OPEC may have less to worry about come spring than some analysts fear. Oil stockpiles in the industrialized nations remain tight, Kreil noted, while crude prices have remained in the middle of OPEC's target range.
And while the world's largest economy, that of the United States, appears to be pulling out of recession, the business climate remains relatively weak. OPEC members remember all too well a disastrous decision five years ago in Jakarta, Indonesia, to raise quotas by 2 million barrels a day as demand was slipping. That decision helped precipitate an oil price crash that OPEC members don't want to experience again.
The U.S. economy is expected to grow by about 3 percent next year and account for about half the 1.4 million barrel growth in world crude demand, the Energy Information Administration said. But non-OPEC producers such as Russia and countries in the Caspian Sea region are expected to meet much of this new demand, the agency said.
For this week, though, OPEC ministers may try to reach an agreement over something they can control: exports.
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