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Thursday, 4 October, 2001, 16:29 GMT 17:29 UK
Opec faces up to low oil prices
Oil well
The oil price is much affected by political tension
By BBC News Online's Jeremy Scott-Joynt

Oil prices are starting to creep upwards after two weeks of rock-bottom levels, which have threatened to throw into turmoil the cartel in control of two-thirds of the world's supplies.

But regardless of whether the gains are sustainable, the Organisation of Petroleum Exporting Countries (Opec) is reckoned unlikely to do anything to keep the price high.

Opec has held back from cutting production, its normal response to a sustained slide in the price.


Our objective is to make sure that we don't enhance any price increase that could result from the attack if there will be one. We don't want to make a decision just before that happens

Chakib Khelil
Opec president
The world economic slowdown - exacerbated by the attacks on the US on 11 September and the resulting collapse in air travel - is depressing demand, and quota-busting by Opec members is not helping either.

The US Energy Information Administration is predicting falling demand for at least the next six months.

It sees demand down by 700,000 barrels per day (bpd) in the current quarter to 76.6m bpd, with the first quarter of next year down 900,000 bpd to 77.7m.

As a result, the oil price has hovered around $20-22 a barrel for much of the three weeks since the attacks .

Below the band

Normally a sustained period - set at 10 days - below the $22-28 band set by Opec would trigger a production cut, as has happened three times this year.

The tenth day, 5 October, is approaching.

Saudi Arabian Oil Minister Ali al-Naimi
Saudi Arabia's al-Naimi: Stability is key
And rumours spread today that the organisation was to meet this weekend at its Vienna headquarters.

The implication of the story - started by the state news agency of Algeria, home to Opec president Chakib Khelil - was that a cut could be on the cards.

Venezuela's Ali Rodriguez, the Opec secretary-general, has now said he is not aware of any meeting.

Other Opec officials have played down the rumour as well, stressing that the next scheduled meeting is on 14 November.

Quandary

The low price has put Opec in a tricky situation.

Should it cut production to boost prices and risk attracting global enmity for exploiting the situation?

Memories are still fresh of the sharp price spike at the time of the Asian currency crisis in 1997-98, not to mention the oil shocks of the 1970s.

Or should its members - many of whom rely on oil revenue for the bulk of their export trade - continue to pump oil at current levels, and face hardship themselves?

The burden has been lifted by the rise back to above $22 a barrel, although it remains to be seen whether that level can be sustained.

Sentiment backs no change

But in any case, with military retaliation by the US against Afghanistan thought to be imminent, Opec is thought to be unlikely to make any early moves.

"Our objective is to make sure that we don't enhance any price increase that could result from the attack if there will be one," said Mr Khelil.

"We don't want to make a decision just before that happens."

And an interview in the Financial Times he indicates that Saudi Arabia, the world's largest oil producer, is against a cut.

"The reason why we probably would not reduce production is not because the price would go up and make consumers unhappy, but because we are after (price) stability," oil minister Ali al-Naimi told the paper.

The mood around the world is such that "psychologically - regardless of what Opec does - the oil market will go down," he said.

See also:

27 Sep 01 | Business
Opec keeps oil production steady
25 Sep 01 | Business
BP cuts petrol prices
24 Sep 01 | Business
Oil prices sink to year low
17 Sep 01 | Business
Oil reverses post-attack surge
13 Sep 01 | Business
Attacks shake oil and gold prices
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