Bloomberg: "Saudi Minister Says Oil Market in `Crisis'"
A gentleman once pointed out to me an inverse correlation between the US $$$ & oil prices. Wondering if it still holds true.
===================
>>>11/15 08:31
Saudi Minister al-Naimi Says Oil Market in `Crisis' (Update3)
By Sean Evers, Stephen Voss, Patrick Gordon and Alex Lawler
Vienna, Nov. 15 (Bloomberg) -- Saudi Oil Minister Ali al- Naimi, whose nation holds a quarter of the world's reserves, said the oil market has entered ``crisis mode' because of slowing demand and a looming price war with rivals such as Russia.
``We will see who has the resolve,' al-Naimi told reporters in Vienna. ``If the price really drops and stays down, you will see a lot of instability not only in the economy but also in the stock of companies and their ability to invest in future production.'
AO Yukos Oil Co. Chief Executive Mikhail Khodorkovsky, who runs Russia's No. 2 oil company, in Moscow rejected the call for cooperation. The Organization of Petroleum Exporting Countries, which pumps a third of the world's oil, yesterday refused a fourth cut in output unless non-members also lower shipments.
The dispute sent oil prices below $18, down almost 50 percent in the past year, and raised the specter of 1998's drop in crude prices below $10 a barrel. Russia, once the world's top oil producer, this year has been stealing market share as OPEC members curtailed supplies to prevent a glut as economies and energy demand slowed.
Brent crude oil for December settlement slid as much as 76 cents, or 4.1 percent, to $17.99 a barrel on the International Petroleum Exchange in London. Its was recently down 24 cents.
The two-day drop in oil prices since OPEC's decision erased as much as $51.2 billion from the stock-market value of Europe's three largest oil companies, Royal Dutch/Shell Group, BP Plc and Total Fina Elf SA.
OPEC wants a 6.5 percent cut in exports from Russia, now the world's second-largest supplier, after Saudi Arabia. Russia produces 6.8 million barrels a day and before OPEC met had offered a reduction of 30,000 barrels a day, or 0.4 percent. Al-Naimi called that ``extremely unreasonable.'
Ready to Fight
Russian producers signaled they were prepared for a fight.
``OPEC's proposals are not acceptable for Russia,' Khodorkovsky said. ``Prices will collapse, but our Arab colleagues won't be able to keep low prices more than two years' because their economies are dependent on oil exports.
OPEC yesterday agreed to lower production by 1.5 million barrels a day on Jan. 1, on condition that non-OPEC producers also cut 500,000 barrels a day. The move would reduce OPEC's oil quota to the lowest level since the Gulf War.
OPEC ministers said they had commitments from Mexico and Oman, though they were still holding out for a larger contribution from Russia and a reduction from Norway.
Russian Prime Minister Mikhail Kasyanov today said the country will not agree to a ``large reduction' in exports, Interfax reported. OPEC Secretary-General Ali Rodriguez said in Vienna that he will meet with Russian officials next month.
Most of Russia's production is now in the hands of private oil companies such as OAO Lukoil and Yukos.
``OPEC has publicly gone out of its way to threaten Russia, thinking that it can win this fight,' said Raad Alkadiri, an analyst of Middle East oil at Washington-based Petroleum Finance Co. who was attending the OPEC meeting. ``OPEC clearly believes that Russian companies are vulnerable to low prices and will eventually give in.'
Norway's Minister for Petroleum and Energy, Einar Steensnaes, will talk to al-Naimi today to discuss the oil market, though Norway is still opposed to making production cuts.
Past Lessons
Oil prices have fallen more than $12 a barrel since an initial surge after the Sept. 11 attacks on the U.S. Janet Henry, a global economist with HSBC, estimates a $10 drop in the oil price boosts world trade by about 0.5 percent a year later.
OPEC has aimed to keep its benchmark oil price in a range of $22 to $28 a barrel and had succeeded in keeping prices within, or above that, for two years until September. Those days are over.
``We have no floor' for prices, OPEC's Rodriguez said today. ``We will suffer the consequences of our common problem if we don't have a common solution.'
The Saudi minister said he expects next year's increase in oil demand will be ``very small' because of struggling world economies. As a result, cooperation from non-OPEC producers is ``more important' than OPEC's compliance with its quotas.
Periods when Saudi Arabia has acted to regulate the market, such as 1982 to 1985 and 1995 to 1997, have been detrimental for all producers since prices plunged, al-Naimi said.
The minister denied that Saudi Arabia and OPEC was starting a price war since the nation isn't planning to use its 3 million barrels a day of spare production capacity.
Feeling The Pinch
Should other producers pledge cuts, OPEC has no special mechanism to verify whether they take place. Russia in 1998 and 1999 promised to reduce exports though failed to deliver.
Saudi Arabia is already feeling the pinch of lower oil prices. Its government is expected by two of the country's top three banks to post a budget deficit of at least $5 billion in 2002. Its advantage are lower production costs, analysts said.
Russia ``is engaged in a game of chicken with OPEC, and OPEC cannot afford to flinch first,' said Eric Kraus, chief strategist at Nikoil Capital Markets in Moscow. ``Oil prices in the mid-teens will focus minds, and I think Russia will eventually cut' supply, he said.<<<
AI
