OPEC Ministers Weigh Another Oil-Production Cut

The world's big oil exporters are struggling to trim production enough to boost prices as demands plummets but now Saudi Arabia says that $75 is a fair price for a barrel of oil. OPEC may still struggle to keep prices at any set level.

Ministers from the Organization of Petroleum Exporting Countries met this past weekend in Cairo, Egypt, to debate whether or not to make another deep output cut when they meet in formal session in Algeria in mid-December. The Cartel's 13 members are already falling behind earlier pledges to trim exports as countries such as Iran and Venezuela try to keep revenue flowing amid a crash in commodity prices and demand in key markets such as the United States. On Friday crude oil closed at $54.43 a barrel on the New york Mercantile Exchange. OPEC's secretary general, Abdalla Salem El-Badri, told sources that members had so far managed to remove 850,000 to 1.2 million barrels a day from world oil markets. OPEC members have been slow to comply with the production cut of 1.5 million barrels a day agreed to in October. Saudi Arabia, OPEC's biggest producer, didn't push for another output cut in Cairo because of the group's lack of discipline. Ali Naimi, the Saudi oil minister, argued that oil prices should be around $20 a barrel higher than they are now. Naimi's remarks represents an unusual departure for Saudi Arabia, which has long avoided the appearance of trying to set the price of oil. Saudi King Abdullah has also used the $75-a-barrel price tag in an interview on Saturday. Current prices are too low to sustain needed investments in oil exploration and production in higher-cost areas, according to other OPEC ministers. When it comes to managing oil supplies OPEC has a spotty record. Lack of compliance with production cuts has been a core theme throughout OPEC's 48-year history. However, this time around keeping up with falling demand may prove particularly tough. For the first time in 25 years the global oil demand looks likely to contract, with more declines expected in 2009. Sources say that the kingdom's reluctance to back a new output cut in Cairo was driven in part by the Saudis' belief in Iran, which is OPEC's second-biggest producer, and Venezuela are cutting output by less than they claim in order to preserve their own oil revenue. Both countries stand to suffer the most from sustained $50 oil prices relative to other OPEC members, as their budgets and spending are based on higher oil prices. OPEC is now calling on other big exporters outside the cartel to help curtail supply to stem the crash in prices. This has happen several other times in the past. Russia has suggested it wants to help OPEC buttress prices but its output is already slipping as Russian production continues to fall because of slowing investment and aging fields. The other non-OPEC exporters, Mexico and Norway seem unlikely to rein in exports at a time of dropping oil revenue. Mexico's oil production is falling on a decline in its biggest field, Cantarell. This sets the stage for OPEC's next formal session on Dec. 17 in Oran, a port city in Algeria and this meeting could be the group's most momentous meeting in years.