OPEC Delays Cuts in Oil Production
LONDON – OPEC's plans to trim oil production stalled Thursday after Norway refused to say how big a cut it would make, sending oil prices lower amid a welter of confusing signals.
In an added complication, the Organization of Petroleum Exporting Countries warned that oil-exporting countries outside the cartel must honor their production cuts for the next six months to avert a collapse in crude prices.
OPEC delayed its formal announcement of a long-planned 6 percent cut in its output because it hasn't received a specific pledge from Norway, an OPEC official said. The announcement had been expected Thursday.
Norwegian Oil Minister Einar Steensnaes said he would have to confer with with other government officials. "We will announce our cut well before Christmas,'' he said in Oslo.
OPEC's delay, combined with Norway's vague response, sowed confusion in oil markets. Prices for January contracts of North Sea Brent crude surged in early trading in London but ended down 79 cents from Wednesday's close to $18.43 a barrel.
On the New York Mercantile Exchange, January contracts of light, sweet crude rose as high as $19.93 before falling to $19.17 a barrel, down 32 cents from Wednesday's close.
OPEC is trying to coordinate a cutback to reverse recent price drops. With a big enough pledge from Norway, the world's third-largest oil exporter, OPEC will be able to justify triggering the 1.5 million barrel-a-day cut its 11 members agreed last month, said the OPEC official, speaking on condition of anonymity from the group's headquarters in Vienna, Austria.
OPEC fears that a recession in the United States and other major energy markets could cause prices to plunge, especially when demand eases during the warmer months of spring.
"We can experience serious problems in the second quarter unless the right conditions are put in place in the market now,'' the group's secretary-general Ali Rodriguez told the official OPEC news agency.
"Any production cuts must be extended for as long as takes, if we are going to be successful in establishing a concrete floor under prices,'' he said.
Rodriguez's comments hinted at a fear among some OPEC members that Russia, in particular, might not stick with its promised cuts for very long.
Russia agreed Wednesday to trim its output by 150,000 barrels a day, leaving Norway as the only major independent producer that hasn't specified a cut. Mexico and Oman have already promised to curtail their production, and Angola has said it wants to cooperate.
As the world's No. 2 oil producer, Russia is the lynchpin in OPEC's effort to secure a production cut of 500,000 barrels a day from countries outside the group. Russia pumps 7.2 million barrels a day, and it agreed only under intense pressure to triple the size of its cut from 50,000 barrels a day. It pointedly did not say how long its cut would last.
Leo Drollas, chief economist of the Center for Global Energy Studies in London, argued that Russia has conceded very little.
Russian oil exports typically fall by at least 200,000 barrels a day during the fourth quarter as cold weather boosts the country's domestic demand for heating oil. The Russians could pass off a seasonal dip in exports as a deliberate cut, Drollas said.
Norway might also finesse its expected cut, as it did in 1998 when it postponed pumping at new oil fields rather than reduce actual production. Norway has so far offered broadly to reduce output by 100,000-200,000 barrels a day.
Even Mexico, which has promised to cut production by 100,000 barrels a day, can be expected to dress up a seasonal drop in exports as an effort to cooperate with OPEC, he said.
"They're all going to fudge,'' Drollas said.
OPEC might well expect as much, which could explain why Rodriguez seemed now to be telling non-OPEC producers to keep their cuts in place for at least six months.
"If they stick to the wording on that, then the whole deal is off, because I don't see the Russians or the Norwegians agreeing to a blanket six-month cut,'' said Jan Stuart, head of research for global energy futures at ABN Amro in New York.
OPEC is pumping more than its own target of 23.2 million barrels a day. If it cuts its nominal output by 1.5 million barrels a day, the actual decrease will be closer to only 700,000-1 million barrels, Drollas said.
George Beranek of The Petroleum Finance Co., a Washington consultancy said U.S. inventories of gasoline and other refined products are plentiful and any prices rises are likely to be modest.
"I really don't think we have to worry about a return to last spring's very high gasoline prices,'' Beranek said.