its was different this time, the fundamentals are strong, except, now

its was different this time, the fundamentals are strong, except, now
the world is swimming in a glut of unsold oil, even china has started
to export its excess supply of gas for the second month in a row, as
the coupled chinese economy export machine, slowly implodes: record
rallies earlier this year were driven more by speculation than supply
and demand


http://news.yahoo.com/s/ap/20081019/ap_on_bi_ge/mideast_opec_s_next_step#full

Analysts: 1 million barrel OPEC cut not enough

CAIRO, Egypt – A crude oil production cut of even 1 million barrels
per day at OPEC's upcoming emergency meeting is unlikely to reverse
slumping prices in the short term, analysts said Sunday, amid
mounting
calls by several cartel members to take action to keep prices at the
$80 per barrel level.
A decision by the Organization of Petroleum Exporting Countries to
hold an emergency meeting next Friday clearly signaled the group's
concern that the recent pummeling of crude prices would erode
revenues
needed to sustain government spending and weather broader fallout
from
the global financial crisis.
The meeting had initially been moved up to mid-November, about a
month
earlier than scheduled, but was pushed to Friday as the oil price
dropped below $70 per barrel.
Analysts said some key producers may be eying the meeting as the
first
step in reasserting control over the market — particularly as the
cartel has argued that record rallies earlier this year were driven
more by speculation than supply and demand.
"What they really want to do is position themselves now in a
situation
where they can manage markets ... a lot more comfortably next year,
and potentially for the recovery in 2010," said Raja Kiwan, a Dubai-
based analyst with the Washington-based oil consultancy, PFC Energy.
Kiwan and other analysts expect the 13 member group, which produces
about 40 percent of the world's crude, to slash production by at
least
1 million barrels per day. OPEC is looking to buoy a market in which
the price of a barrel of benchmark West Texas Intermediate crude has
fallen about 50 percent from record highs of $147 in July on the New
York Mercantile Exchange.
Over a three day period last week, the November-delivery contract on
the Nymex dropped $11 per barrel, rebounding slightly on Friday only
on the back of OPEC's announcement of the emergency meeting.
But even that gain could be short lived, say some analysts, as the
market factors in the anticipated cut ahead of the meeting.
"In the very short-term ... OPEC will likely prove unable to
significantly alter the prevailing market sentiment, particularly as
crude traders look to equities as a barometer of global economic
health (and hence oil demand)," said a recent PFC Energy report.
That presents OPEC with a dilemma. If they announce too big a cut,
they risk fueling the global financial crisis. But, cut too little,
and $80 per barrel will be wishful thinking. Some OPEC officials have
said prices closer to $100 per barrel are ideal.
"I don't think there's been this sense of urgency since the Asian
financial crisis," said Kiwan, referring to the market collapse in
Asia in the late 1990s. "I think those memories are still seared into
the minds of (OPEC) ministers."
Independent Kuwaiti oil analyst Kamel A. Al-Harami agrees. He argues
that given such a delicate balancing act, disagreements are likely at
the meeting between dovish Saudi Arabia and traditional price hawks
like Iran.
Even if the members agree on a production cut, 1 million barrels will
not be enough and "there will be cheating on the quotas from day
one,"
said Al-Harami, who served as former president of Q8, the retail arm
of the Kuwait Petroleum Corp.
Al-Harami believes the group is being hasty in moving to cut
production and believes they should hold off until at least the
winter
when demand for energy for heating picks up.
But OPEC is making it clear that the time for waiting is over.
Chakib Khelil, Algeria's oil minister and OPEC's current president,
said Saturday that the cartel "is going to take the decision that
favors keeping market prices stable."
"There will be a reduction, and it is necessary that it's significant
to establish balance between supply and demand," Khelil was quoted as
saying by the country's APS news agency.
The stakes are high — both for a meaningful production cut and for
quota compliance, something on which OPEC has typically fared poorly.
Over the past few weeks, the slide in prices has become more
pronounced as the global financial crisis sapped demand for crude oil
in the developed countries.
The International Energy Agency, the U.S. Energy Information
Administration and, most recently, OPEC have all lowered their
forecasts for energy demand heading into next year.
Such revisions, in tandem with the price drops, are particularly
worrisome for some top producers like Iran — the cartel's second
largest crude exporter, which relies on oil revenue for about 80
percent of its government budget.
Iranian officials have repeatedly said crude at $100 seems fair.
Others, including Qatar's oil minister and Venezuelan President Hugo
Chavez, have pushed for levels closer to $80-90.
Iran and Venezuela, in particular, have reason for concern because
their production is heavier and more sulfurous and, as a result,
sells
at steep discounts to lighter crudes like the U.S. benchmark WTI.
The OPEC basket — the weighted average of prices for crudes produced
by OPEC countries — stood at $63 per barrel on Friday, according to
Kiwan.
The Saudis have so far stayed quiet.
But analysts said Riyadh is well aware that developing nations, in
particular, will not be silent if presented with steep cuts that
could
undermine U.S. and European-led efforts to stave off a global
recession and shore up financial markets.
PFC Energy's Kiwan said while other cuts could follow the expected
reduction of 1 million barrel per day, the immediate focus is on
halting the price slide.
"One of the keys here is that OPEC is not judging its failure or
success on the short-term," he said. "What it's hoping to do is
provide fundamental support for recovery in the long-term," a plan
which requires them to keep supplies tight going into next year.
Ultimately, added Al-Harami, "the biggest player is Saudi, and what
Saudi decides, the others have to follow."
.

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