With oil prices falling, O.P.E.C. weighs cuts
Ministers of the Organization of Petroleum Exporting Countries meet Tuesday in Vienna and may unofficially ease back on production levels that are above OPEC quotas.
On Tuesday, oil prices dipped below $100 a barrel for the first time since April as expectations grew that ministers from the Organization of Petroleum Exporting Countries (OPEC) would not officially cut production.Skip to next paragraph
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But ahead of Tuesday’s late-night OPEC gathering in Vienna, there was some speculation from energy analysts that producers would agree to modest cuts in output to slow falling prices. Member states Iran, Libya, and Venezuela argued that prices should be left higher.
Reuters reported from London Tuesday afternoon that prices of Brent Crude dropped to $99.56 a barrel. The price of light, sweet crude for October settled at $103.26 on the New York Mercantile Exchange, another five-month low.
However, industry sources also reported that an agreement had been made to trim over-production by 500,000 barrels per day (b.p.d.), without affecting current OPEC quotas that total nearly 30 million b.p.d. The production quotas have been exceeded in recent months – mostly by Saudi Arabia – to rein in surging prices.
Analysts say Saudi Arabia wants the price per barrel to stabilize near $80 or $85, while Iran – which relies heavily on price fluctuations to increase revenue – wants the price to stay above $100.
A summertime boost in production came amid serious talk of prices soaring to $175 per barrel, or even up to $250. Analysts say that while no formal cuts are likely to be agreed in Vienna, Saudi Arabia will quietly reduce its overproduction levels in coming months.
The recent production increase resulted from the US and other major consumers asking to keep prices in check after July's record high of $147.27 per barrel. Now, OPEC leaders are weighing a complex set of variables as they try to strike a balance between keeping their revenues high without hurting global demand.
The decision of the 13-nation cartel will affect the price of oil, which will in turn affect the price of gas at the pump.
"We have worked very hard since June's meeting to bring prices to where they are now. I think everything is in balance," said Ali al-Nuaimi, oil minister of Saudi Arabia, which produces nearly one third of OPEC output.
"There is a misperception out in the market that the Saudis cut production in August [but] we believe they stepped up production in August, to try to change the psychology of the market and move prices down a bit," says Larry Goldstein of the Energy Policy Research Foundation in Washington. "We believe they have achieved that objective."