The news that came out of the meeting of a 13-member oil cartel in Vienna, Austria, was not all that pleasing to the ears.
Behind the scenes, the 13-nation energy cartel juggled the conflicting interests of members and made it clear that the cartel would cut oil production by more than 500,000 barrels per day.
This news quickly sent oil prices soaring again. Benchmark oil prices for sometime now have taken a downward course, bringing some relief to non-producing countries, especially those in the developing world like Ghana.
Before the announcement of the possible cut in the production figures, US Light sweet crude hovered around $102.58, while that of Brent crude briefly touched $98.10.
It was the expectation of all that the prices for this essential commodity will further go down.
In 1999, the price of crude oil hovered around $16 a barrel. By 2008, it had crossed the $100 a barrel mark and was heading towards $150 a barrel.
The reasons for the surge ranged from the relentless growth of the economies of China and India to widespread instability in oil-producing regions, including Iraq and Nigeria’s delta region.
The weak dollar and the speculation, as well as the natural disasters, such as the various hurricanes in the Americas equally contributed to the high price of the commodity.
Triple-digit oil prices have redrawn the economic and political map of the world, challenging some old notions of power.
Oil-rich nations are enjoying historic gains and opportunities, while major importers Ã¢â‚¬â€ including China and India, home to a third of the worldÃ¢â‚¬â„¢s population Ã¢â‚¬â€ confront rising economic and social costs.
Managing this new order is fast becoming a central problem of global politics.
Countries that need oil are clawing at each other to lock up scarce supplies, and are willing to deal with; any government, no matter how unsavoury it is.
Members of the Organisation of the Petroleum Exporting Countries (OPEC) account for 40 per cent of the worldÃ¢â‚¬â„¢s oil exports.
Out of this membership include Algeria, Angola, Libya and Nigeria. Nigeria and Angola are developing countries that badly need the oil revenue to develop their economies.
High crude prices would, therefore, be to their advantage. What about the rest of the non-producing oil Africa countries?
Before the meeting, the cartelÃ¢â‚¬â„¢s members appeared deeply split, with one camp, led by Iran and Venezuela, advocating reductions in output to stem further price declines, and another, led by Saudi Arabia, wishing to allow prices to fall further.
But from all indications, members of the cartel supported the reduction so as to push prices upwards. But whether that will be carried out is another thing.
The cartel’s President, Chakib Khelil, said the group was concerned that slowing demand for oil was creating a glut on the market that might provoke a collapse in prices.
To tighten discipline, Khelil said, the groupÃ¢â‚¬â„¢s actual production would have to be reduced by about 500,000 barrels a day.
Abdalla el-Badri, the group’s Secretary-General, said, “We are oversupplying the market, and we are cutting that oversupply.” Badri added:
“The price was coming down dramatically. The declines of the past are still in our memory. We don’t want to see these prices decline dramatically.”
Despite the decision, it is far from clear whether OPEC producers will actually reduce their output.
However, Saudi officials had been quick to reassure the market that they would continue to provide customers with as much oil as needed.
In June this year, King Abdullah of Saudi Arabia pledged his country would pump at full tilt to bring prices down.
In August, the kingdom increased its production to 9.7 million barrels a day, the highest level in three decades.
Saudi Arabia is now producing around 9.5 million barrels a day, 600,000 barrels a day more than its quota.
It must be noted that the Saudis cannot do it alone. The kingdom must move with other producers so as to stabilise prices. OPEC number two producer, Iran and Venezuela see things differently.
These two countries came to the meeting with a strong case to demand stronger action to stem falling oil prices.
But from all indications, OPEC is determined to reduce supply so as to push prices up.
The cartel has sounded a note of warning, saying that if the decision to cut output is proving ineffective against speculators, next gathering in December would hopefully take more “practical” steps.
The cartelÃ¢â‚¬â„¢s President Chakib Khelil said at the weekend that, “The next OPEC meeting planned for December 17, 2008 in Oran, will come out with a decision that we hope will be more practical.Ã¢â‚¬Â
This clearly means that the oil crisis is not yet over. For now, non-oil producing countries would be enjoying some limited relief.
The warning by the head of the oil cartel should serve as enough signals for developing countries to really put their economies in order to brace future oil price hikes.
Once these groups of producers want to see high oil prices, nothing will stop them.
Source: Daily Graphic