OPEC did it again!

By taking the decision to cut production by 500,000 barrels per day from Feb. 1 the oil organization has outmaneuvered the markets — once again.

Preceding the OPEC meeting, termed “crucial” by many, conflicting signals from within OPEC were confounding an already perplexed market. To cut or not to cut remained the major issue, amid calls from major consumers including the US energy secretary and the IEA, to defer the decision until at least until the next meeting.

OPEC has become quite apt at keeping the markets at bay, guessing its moves until the last moment. On various occasions in past they had taken decisions, almost diametrically opposed to what the “pundits” have been expecting. Indeed OPEC pundits look at the facts with different glasses. It was no different this time too.

A number of issues weighed on the minds of OPEC ministers when they met in Abuja, Nigeria, late on Wednesday for the two-day regular session. Before deciding on the million-dollar question, “to cut or not to cut” and if yes, to what level, the OPEC ministers needed to take into account ample US oil stockpiles, the weakening dollar, slower-than- expected world economic growth, forecasts of strong non-OPEC oil production growth and calls for US and others not cut output at this stage.

In view of the conflicting signals, one issue remained certain. Behind the close doors at the Transcorp Hilton, Abuja in Nigeria, temperatures may have soared considerably, for both the viewpoints were strongly represented at the ministers’ meeting. The doves and hawks both knew their decision would have tremendous impact on the wellbeing of their respective countries and in fact the global economy. The stakes were high and so was the intensity of debate — one could safely deduce.

All eyes were thus glued on the conference hall.

Although there were other issues too on the agenda, yet the sticking point was the output decision for the next quarter. The question what could be a satisfactory price level from a producers’ viewpoint remained a tricky, yet this issue that the ministers had to handle before reaching a conclusion on the output cut issue.

In fact, before coming up with a “fair” answer to the output question they had to decide amongst themselves what would be a “fair” market price of their asset - black gold. This basic question has been confronting the OPEC for some time now. And this meeting was no different.

Prince Turki Al-Faisal, the current Saudi envoy in the US had publicly stated a week ago that Saudi Arabia would be satisfied with a $60 a barrel market price.

Indeed there were reasons for the dove to be that contended. A long-term approach required them to be prudent. In order to sustain the life cycle of their major trading product — crude — they needed to ensure a price bearable for the markets. They further had in mind that too steep a price could jump-start the development of alternative energy sources. The message from Saudi Arabia thus was simple, producers need not perform hara-kiri and that too publicly, by contributing to a premature end of the oil era, by taking the bench mark too high.

However, not everyone was contended. And indeed they had ample ammunition too. Some Iranian officials have been expressing to keep oil prices at least above $70 a barrel mark. Oil prices should climb back above $70 a barrel as a result of winter weather in the Northern Hemisphere and OPEC output decisions, Gholam Hossein Nozari, managing director of Iranian state oil company NIOC, said earlier the week.

“Oil price in the world market has been more than $70 per barrel in the past, but considering the fact that we are approaching winter and demand is increasing, this price could be higher,” said the Iranian official. “We are trying to increase the current oil price through controlling the market,” the official IRNA news agency said.

Then there was the issue of the falling dollar and the rising crude reserves too. The weakening dollar also must also have weighed heavily on the minds of the OPEC ministers. After all, oil is still traded in US dollars and a weakening dollar hurts the oil producers, as much as it hurts some others. And the dollar is currently at a 20 month low against the euro. “The dollar is (not) helping. It affects (our) revenue(s). If there is a significant drop, it is of concern,” UAE Oil Minister Mohammad Hamli said earlier.

Bulging oil inventories in the United States was also under microscope during the meeting. Saudi Arabia has publicly expressed its concern at the current stockpile.

Saudi Oil Minister Ali Naimi said before the meeting, the market was “significantly” out of balance because of swelling global inventories.

Saudi Arabia appeared more concerned at the stock level in the market, as a guideline, and not the prevailing oil prices, analysts said before the Abuja meeting. Qatar Energy Minister Abdullah Hamad Al-Attiyah also agreed with Saudi position that inventories were “very high”.

There were others including Libya who were looking at the market rather differently. A Libyan energy official remarked that the markets seemed balanced and there was no need for the OPEC to cut output any further.

These confusing signals made the task of the ministers’ still difficult. The decision by the OPEC could hence at least be termed as “balanced and considerate.”