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STRATFOR.com
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OPEC's Woes Continue
October 29, 2001
Summary
OPEC representatives met Oct. 29 in Vienna to lay the groundwork for their Nov. 14 summit. But with the global recession deepening, a production cut of the size representatives have outlined will not push oil prices back to the level OPEC considers ideal. To achieve that goal, OPEC must seek help from non-member producers -- but economic and political factors will make other countries unwilling to slash outputs. OPEC must reduce production on its own -- and pushing prices back up could take an entire year.
Analysis
OPEC representatives met Oct. 29 to prepare for their Nov. 14 Vienna summit. The cartel is making no secret of its desire to slash global oil production, probably by 1 million barrels per day, to push slumping oil prices up to an "ideal" range.
Although OPEC's 11 members control 35 percent to 40 percent of global production, they are completely unable to drive prices up in the short- or mid-term without outside assistance. Help is not forthcoming. To achieve a meaningful production cut, OPEC states would need to gut Iraqi output, and even doing that would take many months to significantly impact the oil markets.
That is among the few doses of good news the global economy has received in recent weeks. Shipping costs -- which had risen as a result of higher insurance premiums following Sept. 11 -- will likely plateau in response to lower fuel prices. Heating costs will likely remain manageable this winter in Europe and North America, which are hovering on the brink of recession. And low fuel prices also will help keep inflation in check.
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(c) 2001 Stratfor, Inc.
Dan
OPEC's Woes Continue . . .