To the rescue

OPEC is slashing its oil exports in a desperate bid to shore up crude oil prices and major non-cartel exporters, including Russia, are also pledging support. Gamal Nkrumah reports
At the 119th extraordinary meeting of the ministers of oil and energy of the ten- member Organisation of Petroleum Exporting Countries (OPEC) in Cairo last Friday, members of the cartel plucked up courage and agreed to reduce their oil production by 1.5 million barrels per day (mb/d) starting 1 January 2002. OPEC's bravado was buttressed by the surprise backing of its traditional non-cartel rivals. In an unprecedented development, five non- OPEC oil exporters announced that they would cooperate more closely with OPEC and cut production to boost oil prices.
The five non-OPEC oil exporters now acting in alliance with OPEC are Mexico, Russia, Norway, Angola and Oman.
The decision to cut production was made to stave off a collapse in crude oil prices. Oil prices have not fully recovered from the price crash of 1998, which was triggered by the financial crisis in East Asia. As a result, OPEC has slashed its crude exports by a fifth to five million barrels per day in 2001. By making crude oil more scarce in the world market, OPEC countries are hoping to increase the value (and profitability) of their oil exports.
The world is facing up to the worst economic slide in a decade in the wake of world-shattering events triggered by the 11 September attacks. Due to the unsettling ramifications that resulted for crude prices, OPEC has had no choice but to put the best face on developments and cope as best it can. At the Cairo meeting, hopes were raised for a better immediate future for oil exporters. OPEC's worst nightmare is that wild crude price swings and the general downward slide of prices -- so characteristic of the past few years -- will continue unabated. Now there is a glimmer of hope at least that a new period of relative price stability will be ushered in.
Under the chairmanship of its current president Dr Chakib Khelil, Algeria's minister of energy and mines, OPEC aims at containing the worst of crude price volatility. Crude prices soared to $30 a barrel immediately after the 11 September attacks only to plummet to $17 a barrel by mid- November.
There are some doubts about the willingness of non-OPEC oil exporters to honour their pledges, however. Export cuts by non-OPEC countries will now total 462,500 barrels per day, somewhat short of the 500,000 barrels per day that OPEC had originally hoped for. Nevertheless, OPEC was full of praise for the pledges made by non-cartel oil exporters. Both OPEC and non-cartel oil exporters will benefit from fewer unsettling price fluctuations.
OPEC officials warned that the cartel acting alone cannot arrest the process of oil price decline. They need the support of other major oil exporters -- especially that of Russia. After the Cairo OPEC meeting, it was announced that OPEC ministers will meet with Russian Prime Minister Mikhail Kasyanov in January to discuss developments and seek reassurance from Russia that it will honour its commitment to production cuts.
Russian officials, meanwhile, have been issuing conflicting statements. Russian President Vladimir Putin recently declared that his country -- as one of the world's biggest oil exporters -- was working towards maintaining a fair price corridor of between $20 and $25 a barrel. But his economic adviser Andrei Illarionov has openly favoured lower oil prices to stimulate industrial growth and employment opportunities.
What worries OPEC most, however, is that the privatisation of Russia's vast oil industry since the fall of the Soviet Union leaves the Kremlin little scope for regulating output -- so Russia may not be able to honour its pledge to cut production. But Saudi Oil Minister Ali Al-Nouaimi told reporters in Cairo he is confident that Russia will stick to its promised crude production cuts.
OPEC collectively supplies only 40 per cent of the world's oil output, so closer collaboration with other key oil producers at this historical juncture is imperative. Norway, which produces 3.3 million barrels a day, is the largest European exporter of crude. In the past Norway has shied away from cooperating too closely with OPEC, preferring to deal directly and independently with its mainly European customers. Today, with an eye on capturing new markets in central and eastern Europe, Norway is prepared to play ball with OPEC. But Britain, western Europe's largest gas consumer and a major oil and gas producer itself, has declined to follow suit.
Some OPEC members, most notably Iran, warned that the pledged production cuts were not sufficient to stem the tide of falling prices and urged oil producers to cut production further. Nevertheless, Iranian Oil and Energy Minister Bijan Namdar Zanganeh said that even though his country would have preferred a production cut of two million barrels per day for both OPEC members and non-OPEC exporters, Iran was prepared to accept a 1.5 million barrel per day cut instead.
Prices inched up after OPEC's Cairo meeting announcements. Crude futures markets in North America and Europe were immediately buoyed. In the US, Nymex February crude was up 30 cents at $21.20 while London's IPE February Brent crude was up 50 cents at $20.84.
OPEC's Secretary-General Ali Roderiguez-Araque, who is the former Venezuelan minister of oil and energy, profusely thanked Egypt's Minister of Petroleum Amin Sameh Fahmi for his ministry's hosting of the OPEC meeting. Special thanks were also extended to the Organisation of Arab Petroleum Exporting Countries (OAPEC) and its Secretary General Abdul-Aziz Al-Turki for cooperation in clinching the new deal with non-OPEC members.
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