OPEC struggling with international conditions? Time to show face.   
by Dr. Cyril Widdershoven

As OPEC members agreed to cut production by four per cent, which will mean around 1 million bpd, in the hope of shoring up crude prices at a time of weakening global demand, analysts are predicting hard times for the cartel. The cut which was widely expected, is aimed at keeping prices from falling in the face of a seasonal weakness in demand and an overall decline in global economic growth. It will take effect April 1, the Organization of Petroleum Exporting Countries said. The decision was taken after two days of talks at the headquarters of the cartel in Vienna, Austria. At present, the cartel pumps almost 40 percent of the worlds oil, and their decision will affect retail prices for gasoline and other refined products in importing countries such as the USA or in Europe. 

Unlike previous OPEC meetings in recent years, this one unfolded against a backdrop of economic fragility, with stock markets from New York to Tokyo registering steep losses in share values. Consumer confidence has suffered, and fears of a recession are growing. These economic complicated OPECs efforts to arrive at a suitable cut in production, ministers stated. We have to follow continuously this situation & Of course, the slowdown in the economy was entirely present in our analysis, OPEC secretary general  Ali Rodriguez told a news conference after the meeting.  OPEC president Chakib Khelil said the group made its decision with the interests of consuming countries in mind.

Just as you are concerned about consumers, we are consumers about consumers, OPEC president Chakib Khelil told reporters. 

I think a million barrels a day is already more or less factored into the market, because it is already been advertised, said Mehdi Varzi, a senior oil analyst at the investment bank Dresdner Kleinwort Benson in London. There may be a short-term rebound in prices, Varzi stated, but he predicted that crude prices would decline over the next year or two. Analysts had generally forecasted a decrease in output of at least 500,000 bpd.  The organization also was anticipating a slowdown this spring in seasonal demand for heating oil and gasoline.

The cutback of 1 million bpd would shave production of OPEC members to 24.2 million bpd. However, not everybody is happy. While the move will also benefit the North Sea, Royal Scotland economist Steve Boyle claimed that it would destabilize oil markets.  Philip Thornton, economics correspondent of The Independent (UK), stated that industry is braced for a rise in energy prices, after the cut. Oil prices surged almost 3 per cent on the news, a barrel Brent for delivery in May jumped as much as 70 cents to $25.71.

Irans oil minister, Bijan Namdar Zanganeh, said that the process had been reasonably peace-full. OPEC was worried that its benchmark measure a basket of crude prices was now at $22.77, well below its target of $25 a barrel. Bruce Evers, an analyst at Investec Henderson Crosthwaite in London, said that OPECs debate was a very finely balanced procedure&If they cut too much, they could plunge the world into recession. If they cut too little, they will suffer. Certainly, if the US economy rebounds we would be setting ourselves up for a similar picture to last year when there was a squeeze on prices in the second half of the year, Lawrence Eagle, of GNI Research, stated. if OPEC announces a cut above 1 million barrels ..then prices will go up further. The European Union criticized the move heavily. We are not sure that it is the right time to cut and that there is sufficient reason to do it, said Gilles Gantelet, European Commission energy spokesman. 

Januarys Production Cut (according to official OPEC figures)

Marchs Production Cut (according to official OPEC figures)

US Energy Secretary Spencer Abraham stated on Saturday (17) that the OPEC decision was disappointing and underlined the need to step up crude production within the US. IN light of the current world economic conditions, OPECs decision to cut is disappointing, he stated. Abraham noted that president George W. Bush wanted to increase Americas energy production, so reducing reliance on imported oil. OPECs decision demonstrates the importance of increasing Americas domestic production an the need for a national energy policy that will ensure a stable, reliable, affordable and diverse energy supply, Abraham said. 

A strange little effect of OPECs policy is undervalued by analysts. OPEC could be shooting itself in the foot. The group is playing with fire, by ignoring signs from a weakening world economy. By propping up international energy prices, OPEC is not considered to be supporting the fledgling economies in Asia and the rising pressures in the American economy. Additionally, OPEC will need to keep an eye on its 40 percent share of world oil production. High international prices will definitely increase other exploration and production regions, the Caspian, Africa and South America are already in the starting-blocks. As Mehdi Varzi stated Over time higher investment in OPEC and outside it will raise capacity above demand, which will directly weaken OPECs ability to control the market.

As Khelil stated The world economy looks like it is on a downward spiral&Once you have been in a situation as three years ago you get jittery when prices go down. The group is now taking risks, which could backfire. When oil can be found and produced for just $10 a barrel exploiting the worlds oil reserves is just too profitable at the oil price OPEC countries need to support their energy-dependent economies.

Time will show which way the energy giants will go, but there are clouds on the horizon!

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