VIENNA, Oct 8: The Opec oil cartel will wait for at least 48 hours before taking any decision on cutting output to support slumping prices, after the start of US-led attacks in Afghanistan, a spokesman said on Monday.
But the 11-member cartel, which produces 40 per cent of the world’s crude, said there would be no immediate triggering of a price-band mechanism to cut production, after conditions were met for such a reduction.
Analysts meanwhile forecast that Opec would not cut output to boost prices at such a sensitive time for recession-threatened industrialized economies.
We’re not going to do anything for another 48 hours, Abdelrahman Al Kheraigi told AFP. We expect something by the end of this week if not sooner, he added.
He added that an Opec price-band mechanism, which in theory could automatically have cut production by 500,000 barrels per day on Monday, would not be implemented immediately.
We do not expect any automatic triggering of the price band mechanism, he said.
Under the mechanism aimed at keeping Opec’s basket oil price between $22-28 per barrel, the cartel agreed to cut output by 500,000 barrels per day if the price remained below $22 for 10 working days.
That condition was met last Friday when the basket price stood at $20.09 according to Opec secretariat calculations released on Monday.
Crude prices have plummeted in the wake of the terror attacks, as markets react to slowing demand from increasingly recession-hit economies around the world.
Opec, which produces 40 per cent of the world’s crude, decided at a September 26-27 ministerial meeting in Vienna to keep production quotas unchanged.
Slumping crude prices have a serious impact on the oil-dependent economies of the Opec member states, and the Arab-dominated cartel would normally cut production to boost prices.
But analysts, including the Middle East Economic Survey (MEES) industry newsletter, say the cartel has its hands tied politically under the current circumstances.
MEES understands there is very little chance of an Opec production cut at this point for a number of reasons, it said Monday. To cut production when the world economy is entering a recession would lead to widespread criticism.
The organization feels the impact of the September 1, cuts has not yet been felt in the market and will not be fully apparent until the end of October, it said.
During this uncertain period, a politically more acceptable option for the Opec producers would be to reiterate and demonstrate their commitment to quota observance, which in turn would boost their crebidiblity in the market.
Crude prices barely reacted on Monday to the overnight start of military action against the Taliban in Afghanistan. In Singapore US benchmark light crude futures traded down 24 cents, while in London Brent crude gave up early gains.
The markets had already priced it in, said Salomon Smith Barney oil expert Peter Gignoux.
Dealers in London said that the oil market would shrug off the attacks as long as there was no spill-over into other Arab, Islamic oil producers in the Gulf region.
As long as it doesn’t spill over to other regions I suppose there is no reason for the oil market to go a lot higher, said ABN Amro dealer Terry Wilson. We have still got a recession in our hands worldwide.—AFP
