Falklands : Should OPEC Members be Singing from the Same Hymn Sheet?
Submitted by Falkland Islands News Network (Juanita Brock) 09.10.2006 (Article Archived on 23.10.2006)
Contrary to a letter from OPEC's President, individual members have been discussing production cuts.
SHOULD OPEC MEMBERS BE SINGING FROM THE SAME HYMN SHEET?
An Editorial by J. Brock (FINN)
OPEC has been making plans to cut production by 1 million barrels a day. As well as the credible threat there have been some wild-cat meetings and informal agreements amongst members of the organisation to cut production. It is reported that Nigeria and Venezuela, for example, have jointly decided to cut production by 170,000 barrels per day and Saudi Arabia and other countries want to follow suit.
In a letter circulated on Monday to all OPEC members the organisation’s President, Nigeria’s Energy Minister Mr Edmund Daukoru, has said that production cuts should refer to real production and not a theoretical ceiling and that the cut should be made from group output of 27.5 million barrels per day. He has given OPEC members until tomorrow (10 October 2006) to respond to the letter.
No doubt there are worries about the price of crude falling too low as it has lost 25% of its value since its $78.40 high on 14 July this year. However, analysts agree that panic production cutting may have set in too early as the level has stayed the same over a year and last year at this time the price was approximately the same without alarm or threats of production cuts. They agree that possibly $78.40 per barrel is an artificially high price and that while there should be a benchmark price before panic sets in, it’s not $60.00.
Not all members of OPEC have publicly stated they were going to informally cut production. It is felt that the letter sent by OPEC’s President, Mr Edmund Daukoru goes a long way in getting members to sing from the same hymn sheet. One million barrels a day spread proportionally amongst all members of OPEC sounds like the way forward to see if production cuts will work in this instance. Acting as a group – jointly - will also help OPEC maintain its reputation of being cohesive and thorough as far as prices are concerned.
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