Cairo: Oil ministers from the Arab oil producing countries started their meeting in Cairo on Saturday ahead of an emergency gathering of the more powerful Opec oil cartel in effort to stem plunging oil prices.
The representatives of the Organization of Oil Exporting Countries face their third test in as many months to engineer a rebound in prices hammered by plummeting crude demand amid a global economic meltdown.
This meeting will come down to what Saudi Arabia, the kingpin and traditional price dove in a group that supplies 40% of the world’s crude oil, wants, say experts.
The Saudis have been quiet going into the meeting, not indicating whether they will agree to the production cut being pushed by more hawkish members of the group like Iran on Venezuela.
On Saturday morning, however, an interview with Saudi King Abdallah appeared in the Kuwaiti daily Al-Seyassah in which he said oil should be price at $75 a barrel, far above its current rate.
“We believe the fair price for oil is $75 a barrel,” he said, without elaborating on how this would be achieved. Whereas crude stood at about $147 a barrel in mid-July, it now hovers about $90 lower. On Friday, the US benchmark West Texas Intermediate crude for January delivery was trading at about $54 per barrel.
The cartel, whose next scheduled meeting is on 17 December in Algeria, has already held one emergency meeting on 24 October in Vienna to try to halt the slide in prices with an announcement of a 1.5 million barrel per day drop.
It failed to support prices, and the cartel hastily convened the Cairo gathering on the sidelines of the Organization of Arab Petroleum Exporting Countries’ meeting.
The outcome of the meeting likely hinges on a key issue with which Opec has long had a checkered past: unity.
And, down they have gone, in a financial avalanche triggered by demand destruction, itself sped along by a world financial meltdown that also threatens to cut deeply into Opec member states’ government budgets.
But ministers arriving Friday in Cairo were reticent.
The recent price drop has left price hawks Venezuela and Iran clamoring for further reductions of at least 1 million barrels a day. Both countries need crude of about $90 per barrel to meet current spending needs aimed in part at propping up domestically unpopular regimes.
Unlike many of their fellow members, the Saudis are better positioned to cope with the drop in prices. The International Monetary Fund estimates Riyadh needs crude in the range of about $50 per barrel for 2008 fiscal accounts to break even.
Also unclear, after two earlier cuts failed to push prices higher, is what the group can do without prolonging the global economic downturn.
OPEC itself, along with the International Energy Agency, has significantly revised down its projections for demand growth in 2009.