The Organization of Petroleum Exporting Countries on Wednesday decided to defer action on new oil production cuts aimed at raising oil prices, amid growing frustration over a lack of cooperation from Russia, the cartel's main rival.
A full-blown price war between OPEC and other producers may even be in the offing, which could benefit petroleum-importing nations who are battling to prevent recession.
Delegates meeting in Vienna, Austria, agreed to cut production by 1.5 million barrels per day (bpd), or six percent, but said they could only implement the cut on the condition that Russia and other non-OPEC producers help out.
Russia, the world's second largest oil exporter, said it would make no hasty moves on exports and output and saw no reason for harsh demands from the cartel — a move that led OPEC to defer any cut agreement until January.
OPEC has been working hard to convince non-OPEC oil-producing nations that reducing their production is the only way to shore up plummeting oil prices.
But their efforts have met with little success. Non-OPEC producers, who are less reliant on oil revenues than their OPEC rivals and comfortable with crude prices still double the $10 lows of early 1999, still do not share the cartel's urgency in seeing prices rise.
Strenuous OPEC efforts aimed at drumming up support from the big non-OPEC suppliers Russia, Mexico and Norway have come to nought, with only Russia, the world's second biggest exporter, agreeing to curtail output by 30,000 barrels per day — a negligible amount.
OPEC's decision to defer production cuts is only another sign of the cartel's mounting frustration.
The proposal "does sound pretty unconvincing. Obviously prices are going a bit lower," said Nigel Saperia of oil trading company Glencore in London.
To prevent a damaging supply glut, OPEC has already lowered output limits three times this year, but a slump in demand and steady supply growth from non-aligned producers has pushed world inventories into surplus.
As a result, oil prices have tumbled by 25 percent since Sept. 11 alone and are threatening to fall below the $20-a-barrel level — a far cry from the cartel's $25 price target.
Crude oil for December delivery plummeted $1.93 to $19.74 a barrel on the New York Mercantile Exchange hitting a session low of $19.55 a barrel. That's a level not seen since July 1999.
Price War Good for Oil-Importing Nations
Analysts said OPEC looked set for a damaging price war with other producers. That's good news for energy costs in petroleum importing nations who are battling to prevent recession.
"They're playing with fire and it looks like they're to going to get their fingers burnt," said Gary Ross of New York consultancy PIRA Energy.
"It is a threat to Russia in particular which has seen the biggest growth in non-OPEC output in the past two years," said Mehdi Varzi of investment bank Dresdner Kleinwort Wasserstein.
"The implication is that OPEC will allow the price to go down to a level which begins to threaten the economics of upstream production in Russia. People get very worried in Russia below $15."
"Clearly OPEC members cannot continue to cut output and lose market share indefinitely. But at what point do they say enough is enough?" said Lawrence Eagles of brokers GNI. "Current comments suggest they are squaring up for a fight but are they prepared to see it through."
Lower OPEC limits would leave output by the group, which accounts for 60 percent of world oil trade, at its tightest in 10 years.
If it were to remove 1.5 million bpd, combined quotas for 10 member countries would drop to 21.7 million bpd from 26.7 million at the start of 2001.
Nigerian OPEC representative Rilwanu Lukman said ministers were confident non-OPEC would offer to cut more "when they see what we are offering to cut."
But Russian Deputy Prime Minister Viktor Khristenko, in charge of regulating crude exports, said his country's position had already been made clear to OPEC.
"Russia held fairly active discussions with OPEC member states. The position of Russia is quite clear and precise," he told reporters in the Azeri capital Baku.
Moscow has lifted crude exports sharply in recent years, topping three million barrels a day last month, leaving OPEC to prop up prices while losing market share.
Reuters and the Associated Press contributed to this report.