Oil Impasse OPEC Losing Its Muscle
Despite its bluster about cutting production, the cartel has been unable to marshal its members to halt oil's sliding price.
OPEC's oil chiefs were almost begging to be taken seriously on the eve of their conference in Oran, Algeria. When Saudi Oil Minister Ali al-Naimi arrived at the Sheraton, a big glass-and-steel building in the hills above the city, he told the waiting scrum of reporters that OPEC planned to cut production by a big number. Sure enough, on Dec. 17, OPEC announced cuts that amounted to 2.2 million barrels a day. Unimpressed, the market for crude drifted lower, to around $40 (28).
OPEC wants to turn oil prices back around. But it doesn't seem to be working.
Why is OPEC's reputation taking such a hit? The market views it as having let things get out of control when prices were surging. Now the cartel can't seem to contain a downward slide, either. "I don't think they even have compliance on [the cuts] they've already done," says John Hall, a London-based analyst attending the conference. OPEC adopts production quotas for each of its members, but it rarely adheres to them. OPEC delegates reckon the 1.5 million- barrel-per-day cut announced in October reduced production by only 1 million barrels -- nearly all of it from Saudi Arabia.
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As OPEC strives to retain its clout, a glut is emerging that could drive prices even lower. Off Iran's Kharg Island oil terminal are seven supertankers laden with Iranian crude. Iran is storing oil on board in hopes of higher prices later, according to an industry source. Worldwide, an estimated 21 ships are holding about 40 million barrels. At the end of October there were just five. That means producers have been churning out 750,000 to 1 million barrels a day for which there are no ready buyers. With the production cuts, OPEC is simply trying to avoid swamping the world with oil.
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