LONDON/TEHRAN: Opec divisions could “tear the organisation apart” as its biggest producer, Saudi Arabia, pursues a more moderate course than other members calling for supply cuts to revive oil prices, a London analyst said.
“Saudi Arabia has not joined the Opec hawks, led by Venezuela and Iran, in calling for another supply cut, and we think we could be witnessing the beginning of the end for the organisation,” Neil McMahon, a London-based analyst at Sanford C Bernstein & Co, wrote in a report yesterday.
Opec announced on Friday it would hold an extraordinary meeting on November 18 as the worsening credit crunch threatens to restrain economic growth and curtail energy demand. Oil has slumped 47% from a July record to trade near $78 a barrel on Friday.
Opec President and Algerian Oil Minister Chakib Khelil and Shokri Ghanem, chairman of Libya's National Oil Corp, have both said Opec needs to cut production to stem the price slump.
“As the only country likely to have any real influence on supply within Opec in the near and longer term, the Saudis are the key to the future existence of Opec,” the report said.
“However, we do not necessarily think that Saudi wants to cut, as a falling oil price should contain the amount of demand destruction, and secondly if Saudi cuts its share, will the hawks actually cut theirs?,” Bernstein said.
Without a concerted Opec effort to reduce supply, prices are likely to drift to the marginal cost of $75 to $80 a barrel, or $60 to $70, when adjusting for a recession and lower service company costs, according to McMahon.
“Such an outcome would likely create an untenable situation within Opec and the potential for the organisation to cease to work as one body,” he wrote.
Falling oil prices will hurt investment and ultimately the consumer if they do not return to a “logical level,” Iran’s oil minister said yesterday after crude plunged by 17% in a week of turmoil.
Oil Minister Gholamhossein Nozari called for “fundamental decisions” but did not spell out whether he believed Opec should cut output at an emergency meeting scheduled for next month in Vienna, suggesting it would depend on the market situation.
Crude prices were not predictable, he said on the sidelines of an energy conference in Tehran. Iran is the world’s fourth-largest oil producer and traditionally a price hawk in the Organisation of the Petroleum Exporting Countries.
“We think that this meeting will take good decisions. The aim Opec pursues is establishing stability in the market,” Nozari told reporters.
Oil prices touched 13-month lows on Friday in a global flight from risk amid concerns of a worldwide recession and further signs of slumping energy demand.
The price fall has caused some Opec members to call for a production reduction, and the group will discuss the impact of the global financial crisis on the oil market at a November 18 meeting in the Austrian capital.
British Prime Minister Gordon Brown has said it would be wrong for Opec to cut output just as oil prices are falling. – Bloomberg, Reuters
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