As oil falls, Opec meet to review production cut

Written by Sanjay Jog | Mumbai | Updated: Dec 17 2008, 05:14am hrs
The Organisation of Petroleum Exporting Countries (Opec), in its 151st extraordinary meeting in Algeria on December 17, will review the decrease in the Opec 11 production of 28.808 billion barrels a day, by 1.5 million barrels per day, effective from November 1. The decision was taken at the 150th extraordinary meeting in Vienna in the wake of a dramatic collapse in oil prices. Wednesdays meeting is also crucial as crude oil prices, moved by an astonishing $150/barrel fell to $42/barrel in December.

Chakib Khelil, minister of energy and mines, Algeria and president of the Opec Conference, in an email address said, This extraordinary meeting is taking place at the end of an exceptional year, in which we have been facing major challenges in the oil industry, with prices reaching record levels, accentuated by large fluctuations. We are hoping that our meeting in December will leave behind us these erratic swings in oil prices.

According to Opec, the immediate outlook for oil producers is, therefore, a gloomy one. Low prices mean less investment, which in turn may mean that this years volatility will return to the market in the not-too-distant future. Two distinct ways of assessing oil prices have emerged recently, and they must ultimately be in line with each other, if the market is to function in a stable and orderly manner. There is a clear mismatch along the time-horizon, with many long-term investment needs, not being supported by short-term price movements. Increasingly, delays, cutbacks and cancellations of projects are being announced throughout the industry, together with other responsive measures, as crude prices drop from one investmentbreakeven level to the next and the realisation dawns that this is no overnight phenomenon. Moreover, this trend has been reinforced by the present severe restrictions on credit and the gloomy world economic outlook.

Further, Opec said the issue of breakeven levels for investment in both oil and other forms of energy features prominently in discussions within the industry in the present, reflecting widespread concern among all parties. Other intergovernmental energy groups have also warned of the dangers to future supply of heavy cutbacks in investment. There is, indeed, a strong element of having to play off todays interests against those of tomorrow, in a tough, demanding and uncertain world economic climate.

While the Opecs market stabilisation measures are sometimes tailored around addressing a short-term development in the market, the Opec prefers to focus on sustainable, long-term actions, from which the entire world community will benefit.