PBS provides a good account of the OPEC meeting's tensions

Check it out here.

OPEC "helpless"

Gulf News

Falling oil prices are "wreaking havoc" on the industry and threatening future supply expansion projects, Saudi Arabia said yesterday as top producers find themselves helpless to stem the price slide.
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Kate Dourian, Middle East editor of energy information provider Platts, told Gulf News adherence to production quotas by Opec members will be the key to supporting oil prices.

"Their options are limited. There is no further cut on the cards for two to three months," she said.

Some in Opec are known to flout their collective decisions, but this time the Saudis, who will bear the bulk of the latest cut, "will not put [up] with non-adherence by others," Dourian added.

Market in disbelief

The market doesn't seem to believe OPEC compliance will be high.

BBC:

The oil producers' cartel Opec has agreed to make a record cut in output, slashing 2.2 million barrels per day (bpd) from its current supply.

Opec has made two other cuts since September, meaning it has cut a total of 4.2 million bpd in four months.

Despite the record cut, oil prices continued to fall as US data provided fresh evidence of falling demand.

US light, sweet crude for January fell as low as $39.94 a barrel, its first time below $40 since July 2004.

The falls were blamed on US inventories figures, which showed that demand for petrol in the four weeks to 12 December was down 2.7% from the same period last year.

The price later recovered slightly to trade on the New York Mercantile Exchange at $40.31, which was down $3.29 from Tuesday's close.

Opec said that it hoped the record cut would boost prices but that it had no formal price target.

The cut means that the target for production for the 12 member states is now 24.845 million bpd. The cut is effective from 1 January, but the big question with Opec production cuts is always whether the member states will actually make the cuts they have agreed to.

"Given the still-substantial risks to demand and ongoing scepticism on Opec compliance, it could take some time before prices recover materially above $50 to $55 per barrel," said Gordon Gray from Collins Stewart.

Now here's some gibberish:

It is hoped a sharp supply cut will put oil on the path towards $75.

"You must understand the purpose of the $75 price is for a much more noble cause," the Saudi Oil Minister said. "You need every producer to produce and marginal producers cannot produce at $40 a barrel.

"Therefore we believe $75 is probably more conducive to marginal producers to continue so we don’t have a shortage in the market and we avoid the future rocketing of prices."

Let's set aside the possibility the statement is self serving. For the world's perspective it's inefficient for a low cost producer to cut output in order to raise price enough for a high cost producer to be profitable.

Someday demand will come back. What the oil minister might be getting at is will the marginal producers be ready when it does, or will there be a rocketing of price as we get this past summer? Daniel Drezner has that on his mine as well.

OPEC disarray

Financial Times:

Saudi Arabia called on Tuesday for the biggest single production cut in the history of the Opec oil cartel to counter the collapsing price of oil.
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Oil prices jumped on Tuesday after Mr Naimi’s [Ali al-Naimi, Saudi Arabia’s oil minister] comments but fell again to close at $44.04, down 47 cents.
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Iran, Venezuela, and Angola have failed to live up to pledges to reduce production substantially. Angola, Opec’s most recent entrant and next president, increased production last month, according to Opec’s forecasters.

David Kirsch, analyst at PFC Energy, the consulting group, said: “Naimi clearly has reservations about seeing Saudi Arabia reprise its classic swing producer role within Opec by shouldering the lion’s share of any production adjustments. Nevertheless, it now appears that the Saudis are willing to do what it takes to strengthen prices, irrespective of other members’ compliance levels.”

The dramatic drop in the oil price, now below the level at which Saudi Arabia can balance its budget, was the prime reason for the kingdom’s decision.

My emphasis.

Update: Writing from a U.S. perspective, TigerHawk observes,

I cannot help but notice that two of OPEC's leading cheaters, Iran and Venezuela (which had the stones to call for deeper production cuts just today, even though it had not implemented the last one), are the most openly anti-American of its members. So, our enemies are doing their level best to steal from and undermine the cartel that is fixing the international price of our most important strategic commodity.

I don't care who you are, that's funny.

OPEC "has no business model"

AP:

"There is total confusion" among OPEC's 13 members, said Fadel Gheit, managing director of oil and gas research at Oppenheimer & Co. in New York. "These people ... really have no business model. They basically thrive when oil prices go up, and now they are crying uncle when prices go down."

And, down they have gone, in a financial avalanche triggered by demand destruction, itself sped along by a world financial meltdown that also threatens to cut deeply into OPEC member states' government budgets.

WSJ:

The Organization of Petroleum Exporting Countries decided Saturday to put off any fresh action over whether to further cut its production until it meets again in mid-December, said Head of Libyan National Oil Co., Shokri Ghanem.

Times are tough. How does this play into OPEC agreements? Is it harder to agree? Is there more incentive to cheat on agreements? Is it even in OPEC's interest to cut output and possibly exacerbate the worldwide downturn?

Oil Prices: the difference a week (weak?) makes

A week ago: We will drive "oil prices through the roof" if you persist in the development of bio-fuels.

Today: The story is of the recovery of oil prices from a huge selloff on Friday.

If OPEC wants to delay the development of cost-effective bio-fuels it should expand production, not contract it. Conversely, if bio-fuels become more likely to be competitive in the future, we would predict oil prices to fall today.