The Wall Street Journal-20080202-OPEC Stands Pat- Sensing Slack Demand
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OPEC Stands Pat, Sensing Slack Demand
Full Text (603 words)VIENNA -- In a string of gloomy pronouncements, OPEC pointed to signs of "economic crisis" in the U.S. to justify keeping its oil production unchanged, amid suggestions the group may move to trim output as soon as next month in a bid to support prices.
The tone here showed how much has changed from just two months ago, when the 13 members of the Organization of Petroleum Exporting Countries last met amid concerns among consuming nations of soaring oil prices and tight supplies. President Bush traveled to Saudi Arabia last month and made a very public appeal for the world's largest petroleum exporter to widen its oil spigots.
But after meeting here in special session, OPEC oil ministers concluded that the weakening U.S. economy looked set to blunt world- wide oil demand, leading to potential oversupply in the second quarter.
Ministers stopped short of saying that an output cut was on the table. But the group did express apprehensions about a potential overabundance of oil, which would likely drive down prices. The group noted in its communique that "significant uncertainties associated with the projected downturn in the global economy called for vigilant attention" leading up to the cartel's next meeting on March 5. In remarks to reporters afterward, Algerian oil minister Chakib Khelil, the OPEC president, said the "economic crisis" in the U.S. "and the possibility of a recession will go toward lower demand in the future." The group predicted that global stockpiles of crude oil would build through the first half.
A move to cut output at a time of continued high prices and economic jitters in much of the developed world would almost certainly draw heavy criticism in the U.S. and Europe.
The International Energy Agency, which serves as an energy watchdog for developed countries, disputed OPEC's latest assessment, saying that more oil supplies were still needed to balance the market. "It is not clear that even keeping output steady through to the end of the second quarter will do enough to replenish oil stocks to last year's levels of the five-year average," the IEA said in a statement. OPEC last cut output in late 2006, when oil prices were falling steeply and hovering around $60 a barrel. Futures prices this time around have fallen off their intraday high of $100.09 early last month, but they still remain strong. U.S. benchmark crude fell $2.79, or 3%, to $88.96 a barrel Friday on the New York Mercantile Exchange.
At the same time, though, Saudi officials now think the demand for oil this year could grow by as little as 850,000 barrels a day, or less than 1%, with nearly all of that growth due to surging demand in China, India and the Middle East. OPEC supplies about 40% of the world's current demand of around 86 million barrels a day. Speaking privately, some delegates expressed skepticism about OPEC's ability to enforce a shared output cut, should the cartel decide to take that step. Some producers, eyeing their own spending needs, are reluctant to trim production as long as prices remain at historic highs.
Others suggested that Saudi Arabia, which quietly increased output at the end of last year well beyond the group's announced levels, could now quietly cut back production, but without the group having to make a formal decision. Either route could put Saudi Arabia, as OPEC's largest producer and de facto leader, in an uncomfortable bind. A beaming Ali Naimi, the Saudi oil minister, told reporters after Friday's session that he was smiling because the decision to hold pat was so "easy." Next month's debate may be a lot tougher.
