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STRATFOR.com
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THE INTERNET SOURCE FOR GLOBAL INTELLIGENCE
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OPEC Unable to Bring Prices Down
October 8, 2001
Summary
Ministers representing the 11-member Organization of Petroleum Exporting Countries decided Oct. 7 not to cut oil production despite the drop in prices since the Sept. 11 attacks on the United States. This is tacit acknowledgement that restoring oil prices is beyond OPEC's current capability. A production cut of the size necessary to restore the cartel's $25-per-barrel target price would bankrupt all of the OPEC states.
Analysis
OPEC Secretary-General Ali Rodriguez said Oct. 7 that due to the unique global situation following the U.S.-led strikes on Afghanistan, the cartel would wait before taking steps to limit oil supplies. Prices, according to OPEC's measurement, have fallen 24 percent since the Sept. 11 attacks on the United States while the price of Brent crude continued hovering at around $22 per barrel Oct. 8.
For the time being, OPEC's members actually do not have the ability to restore oil prices to their preferred price of $25 per barrel. The global recession, robust oil supplies and the refusal of non-OPEC states to cut production will sabotage any attempt to shore up prices in the next six months. Such a chain of events will lead to cheap energy, higher energy security and a quick degradation in the economies of OPEC members.
All the relevant energy-price indicators are pointing in the same direction: down. Energy consumption is lower across the board, in part due to the global recession. For instance, the Oil and Gas Journal estimates that demand for jet fuel is down 20 percent in the United States and down 10 percent elsewhere. The aviation industry accounts for 8 percent of global oil consumption.
(Source)
(c) 2001 Stratfor, Inc.
Dan
OPEC Unable to Bring Prices Down . . .