By Steven Mufson
Washington Post Staff Writer
Wednesday, September 10, 2008
Faced with slumping energy demand from weakening industrialized economies, OPEC oil ministers said last night that petroleum markets are "oversupplied" and vowed to stick to self-imposed quotas that could carve 520,000 barrels a day out of world production.
The move comes just as prices had started to ease to levels last seen in early April, far below July peaks but still higher than they have ever been before this year.
"Since the market is oversupplied, the conference agreed to abide by September 2007 production allocation," the Organization of the Petroleum Exporting Countries communique said after ministers adjourned early Wednesday morning in Vienna. It said that those were "levels with which members committed to strictly comply.''
The OPEC communique amounts to a call on Saudi Arabia, the cartel's biggest producer, to curb output and reverse an increase it unilaterally announced at a June 21 meeting of oil producers and consumers. The kingdom is now producing close to 9.7 million barrels a day, about 750,000 barrels a day more than its official target.
The decision could prop up prices, which had fallen yesterday in response to earlier comments from Vienna and news that a weakened Hurricane Ike has turned away from Gulf of Mexico oil platforms. Oil prices dropped $3.17, or 3 percent, to $103.17 a barrel, the lowest level since early April on the New York Mercantile Exchange. Investors also bailed out of energy stocks, sending Exxon Mobil shares down 4.6 percent, Conoco Phillips down 8.5 percent, refining giant Valero Energy down 11.8 percent and Brazil's Petrobras down 11 percent.
Ministers from OPEC, which produces about 40 percent of the world's petroleum, said they wanted to stop the slide in prices. "We should do what we can to keep prices at the level of around $100 a barrel,'' Venezuelan Oil Minister Rafael Ramírez told reporters at the open session at the meeting yesterday evening.
OPEC, which has blamed financial players or "speculators" for the whipsaw of oil prices, will get some affirmation today in Washington. Members of Congress who have been investigating speculation in energy markets will release a study by Michael W. Masters, manager of the hedge fund Masters Capital Management, asserting that financial firms have dragged down prices by selling off $40 billion worth of energy positions since July 15.
Oil prices have lurched wildly since OPEC ministers last met in March, rising as much as 50 percent at one point and by as much as $11 in a single day. Prices have tumbled about 30 percent from $147.27 a barrel July 11.
During this six-month period, Saudi Arabia nudged up its production by about half a million barrels a day. Overall, OPEC countries are producing about 1 million barrels a day more than their self-imposed quotas, but about 2 million barrels a day less than their capacity.
OPEC president Chakib Khelil, Algeria's energy minister, said recent price declines supported the group's prevailing view that the cartel's supply restraints weren't to blame for soaring prices.
"All of this vindicates what we have been saying over the past year about the enormous impact that non-fundamental factors have been having on oil price volatility," Khelil said as the ministers began their meeting. "This explains why we were reluctant to respond to calls to increase our production when prices were rising persistently, because we knew we would be treating the illness with the wrong medicine."
But OPEC's reluctance to act vigorously to dampen prices has irritated many consuming nations. Even after the recent slide in prices, a typical basket of crude from OPEC nations still costs about $101 a barrel, about 46 percent more than last year's average.
Some OPEC members have grown accustomed to high prices. Analysts say that even the cautious Saudis have raised their target price range to $80 to $110 a barrel.
"Politically, a reduction in output may be interpreted as a lack of concern for the state of the world economy, at a time when OPEC countries' revenues are predicted to sky-rocket above $1 trillion for 2008," Lehman Brothers said in a report last week.
But Roger Diwan, a partner in the consulting firm PFC Energy, said that the third quarter is usually when oil consumption is lowest and that OPEC fears sharper price declines. "They are just trying to put back this market in a more balanced equilibrium since production is really running ahead of demand and to anticipate the anemic economic growth that we will face in the next couple of years," he said. "They are signaling that OPEC is back in term of managing markets, and that they will be proactive now."