CAIRO: OPEC is fine tuning its strategy heading into a meeting this week in Algeria, determined that its fourth attempt in as many months to reverse plummeting crude oil prices will succeed.
Working against the Organization of Petroleum Exporting Countries is its own past — a history pockmarked with the rival priorities of its 13 member states and major policy blunders in times of economic crises.
One only need to look back two weeks when the group met in Cairo and postponed a decision on production cuts until Wednesday’s meeting in Oran, Algeria, sending crude prices tumbling down to $40, the lowest level since 2004.
OPEC members’ fractious relationships have made it difficult to control supply, and thus price, in both good times and bad, said Edward Chow, senior fellow at the Washington-based Center for Strategic and International Studies’ Energy Security program.
“The experience in the last 20 years suggests that they will have a hard time” defending a price floor, he said, noting the group had similar problems when crude rocketed to nearly $150 a barrel in July.
“They’ve been riding the roller coaster rather than managing supply,” Chow added.
David Kirsch, oil analyst with Washington-based consultancy PFC Energy, said Saudi Arabia, the group’s largest producer and de facto leader, may have allowed crude to tumble as a warning to other members of what’s in store should they fail to adhere to production cuts immediately.
“Definitely, they were playing a game of chicken going into Cairo,” said Kirsch. “I don’t think they’re doing that any more.” The crude futures market is now in what oil traders call a “contango” — where oil delivered in the next few weeks is cheaper than in the following months. Much like shoppers rushing to buy sale items at the store, crude consumers have been stocking up.
With demand hitting 25-year lows, the economies of oil producing countries are under extreme stress and OPEC must slash output to reverse the contango trend.
Cooperation from non-OPEC nations like Russia may help, though it remains unclear whether Moscow will offer anything more than moral support. Its production is already on the decline and the oil giant may already be in recession.