Daily Telegraph: OPEC in emergency talks over falling price

By Russell Hotten, Industry Editor
Last Updated: 3:27am GMT 10/01/2007

The OPEC cartel of leading oil producing nations is considering emergency measures to prop up prices after the cost of a barrel of crude fell to its lowest in 18 months.
   
Oil ministers are today expected to continue yesterday’s frenzied round of telephone calls after the price fell below $54 a barrel, triggered by mild weather, particularly in the US.

The oil markets initially shrugged off an escalation of an oil pipeline dispute between Russia and Belarus, and some OPEC members fear that the price will fall further unless the organisation agrees to cut production.

But with Russia and Belarus failing to reach agreement, early losses were pared with Brent recovering to close 42 cents lower at $55.18. A long-term fall in crude prices could have widespread consequences, from damaging Gulf economies to undermining the business models of oil exploration companies. Oil giant BP underlined the impact yesterday when it said global refining margins had been slashed.

OPEC president Mohammed al-Hamli, also oil minister of the United Arab Emirates, is thought to have spoken to several gulf states, Venezuela and Nigeria yesterday. Venezuela is believed to favour an emergency meeting before a scheduled OPEC session on March 15. Some members want to assess the impact of production cuts that OPEC agreed before the most recent oil price fall.

Last month OPEC agreed to cut oil output by 500,000 barrels per day (bpd) from February 1, adding to a reduction of 1.2m bpd from November. But this has failed to halt the falling price, down almost 11pc this year. OPEC would like to keep crude at about $60 a barrel, with top producer Saudi Arabia aiming for between $55-$65.

With no clear signal that OPEC will agree a strategy soon, there was an expectation yesterday that some speculators would begin testing the $50 a barrel threshold. BP said yesterday that refining margins in the last quarter were down 17pc year-on-year to $6.30 a barrel. This was based on average quarterly oil prices of $60 a barrel.

The company also said that it missed its production targets for the last quarter, producing 3.82m barrels a day – a 5pc fall on the same period last year. BP said production levels were affected by weather-related delays in Alaska, unusually low seasonal gas demand and OPEC quota restrictions.

Record oil prices in 2006 will mean BP is still likely to post bumper profits when it reports annual results next month. Investec Securities is looking for adjusted net income of $22.4bn (£11.6bn), against an equivalent $20.7bn (£10.7bn) in 2005. BP shares closed down 17p at 535.5p.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/01/10/cnoil10.xml

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