Members of the Organization of Petroleum Exporting Countries (OPEC) yesterday considered cutting production in an attempt to buoy sinking world oil prices, but experts doubted they could pull it off in the face of the cartel's internal disunity and a dwindling demand for oil.
The authoritative Middle East Economic Survey reported that Saudi Arabia and other oil producing nations would meet Monday to plan sharp production cuts so they could maintain their $29 benchmark price. Production cuts were also backed by United Arab Emirate Oil Minister Mana Saeed Otaiba, who told a British television station that OPEC is more likely to decide to cut output rather than prices in an attempt to tighten world oil supplies.
Oil ministers from the 13 OPEC members have set an open-ended emergency meeting for Oct. 29 in Geneva to address this week's tumble in oil prices, which included a break by Nigeria from the cartel's pricing policy. The preliminary meetings Monday also will be in Geneva.
The meeting is likely to pit Iran, which 19 months ago opposed OPEC's first price cut ever, against Saudi Arabia, which had argued that the price cut would increase world demand for oil.
That demand never grew, said Harry Schuler of Georgetown University's Center for Strategic and International Studies, and the current oil glut is seen as a major factor underlying this week's wave of sudden price cuts.
Schuler, who will be briefing the U.S. Joint Chiefs of Staff Wednesday on the world oil situation, said OPEC needs to take the "bold step" of cutting output to push prices up. But he said the market will be "skeptical" that the OPEC members can hold the line in view of the past record of its members in offering discounts and under-the-table deals.
On the other hand, OPEC could benefit from the fact that oil companies, hoping for further price cuts, have maintained low stocks even as they approach winter, when demand increases, he added.
Reducing OPEC's production is likely to fail because OPEC has "not done a good job policing their cartel," said John Lichtblau of the Petroleum Industry Research Council.
"It will be awfully tough for OPEC to pull this one off," added Stephen Smith, a senior vice president and oil analyst for Data Resources Inc. He said there is an 80 to 90 percent chance that OPEC will be forced to lower its benchmark prices.
"This is not just a $2 price cut," said Smith. "The image now is OPEC under siege. I really see them poised at the edge of a lot more trouble if they yield to this."
Lichtblau agreed it will be harder for OPEC to hold the price line as a result of Nigeria's decision Thursday to join non-OPEC members Norway and Great Britain in price cuts.
But he said the oil prices are unlikely to fall by more than $2 a barrel from its current benchmark price of $29.
A price drop of that magnitude translates into $12 billion in total savings for all of OPEC's customers and about a 3-cent-a-gallon reduction in the price of of gas for American drivers. It also could satisfy European hopes that its lagging economic recovery will turn into a lasting boom. Analysts there said lower oil prices will curb inflation and stimulate consumer spending.
In Britain, where the pound tumbled to new lows Wednesday on word that it cut the price of its North Sea oil, experts at the London Business School's Center for Economic Forecasting said a drop in oil prices to $25 a barrel means a 1 percent increase in economic growth and a gain of nearly 200,000 jobs over three years, The Associated Press reported.
For OPEC members and Third World oil exporting nations that operate independent of the cartel, however, the picture was far less rosy.
Mexico, a non-OPEC member that is heavily in debt to western banks and lending institutions, stands to lose $1.5 million a day from a $1 cut in the price of a barrel of oil, Lichtblau said. The magnitude of that loss, which equals about $600 million a year, could stifle Mexico's economic recovery, which has been achieved as a result of a tough austerity program.
Mexico is the United States' No. 1 oil supplier, sending 700,000 barrels a day -- roughly one-fourth of its production -- across its northern border.