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OPEC to meet under cloud
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September 25, 2001: 7:12 a.m. ET
Economic gloom may force oil cartel to hold supplies at current levels
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LONDON (CNN) - OPEC will meet on Wednesday to discuss whether to cut production, as the world economy looks down the barrel of a possible recession.
Members of the Organization of the Petroleum Exporting Countries will be under pressure not to cut quotas amid concerns any U.S. military action against Afghanistan could further damage the sluggish global economy.
"OPEC would find it difficult to cut production as it would be an effective 'kick in the teeth' to U.S. efforts to pull its economy away from recession and to reduce the negative consequences of the recent attacks on the U.S., Lawrence Eagles, oil analyst at GNI, wrote in a note to investors.
"Indeed, even if OPEC is not bothered about helping America per say, economic considerations make a lower price as sensible option," Eagles added.
Crude prices at first fell after the terrorist attacks, then spiked near $30 a barrel before a sustained fall which has now made oil more than four dollars a barrel cheaper than it was two weeks ago.
Brent Crude futures for November delivery plunged 342 cents to $22.02 on London's International Petroleum Exchange on Monday. That's bad news for the OPEC members who need to defend the price of crude as it represents a major source of revenue for the countries.
The price of OPEC's basket of crudes dropped out of the cartel's preferred $22-$28 range on Monday, plummeting to $20.51 a barrel from $23.98 on Friday, the OPEC news agency said.
OPEC, which supplies about 40 percent of the world's oil requirement, can choose to cut production to boost the price of crude.
Analysts said it may have been successful this year in keeping its own basket of crude oils well within its target price range. But as economies cool, that is no longer sustainable.
"The question is whether OPEC allows prices to slip to a slightly lower range without formally abandoning its basket price," Mehdi Varzi, an oil analyst at Dresdner Kleinwort Wasserstein, told CNN.
"But I would stress: I don't think OPEC is in a position where it is on the verge of near-breakdown as it has been in the past -- co-operation is still pretty good among the key member-countries."
A hike in crude prices could add to the economic gloom already experienced by the airline industry, which has been forced to axe more than 100,000 jobs in response to the terror attacks on New York and Washington.
Following the attack, both Saudi Arabia and the OPEC Secretary General Ali Rodriguez have said the oil exporting cartel was committed to ensuring stable oil supplies and prices.
Anais Faraj, economist at Nomura International, told CNN that the decision may not be made by OPEC ministers but may be taken at a higher level.
"They've spent the last five years trying to de-politicize the whole oil price setting mechanism, getting rid of the image of OPEC as a politically driven cartel, trying to portray themselves as central bankers and they are being asked to make a tough political choices now," Faraj said.
The cartel has made clear it is willing to pump a little more crude to top up oil stocks in case of an extended war, but as the world's economies slow, there are only two unlikely things that could lift oil prices once again: a long cold winter in the United States and a rapid economic recovery.
--CNN Business Correspondent Charles Hodson contributed to this report. 
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