Emergency Meet of OPEC on Oct 19

The organization we all love to hate is back in the news. It’s the much talked about OPEC or the Organization of Petroleum Exporting Countries, which has now announced an emergency meeting on the 19th October to finally give shape to the one million barrel per day cut in production of crude oil.

The effect of this announcement in the markets is almost the same as that of previous decisions, hardly any substantial activity! Well, the decision to cut is based on simple economics theory: other things remaining constant the price of a commodity increases if the production is lowered. The existing production limit stands at 28 million barrels a day.

Oil prices have fallen by about 20% from mid July. From the high of $78 per barrel the prices had dropped to $57 before Venezuela and Nigeria decided to cut the production by 170,000 bpd. Later it was decided among the eleven members to voluntarily cut the production to prevent the further drop in prices.

The prices in November have slipped by $1.19, or 2%, to $58.57 a barrel this week on the New York Mercantile Exchange. Apart from the consumers, the stock owners are also keeping a tab on the changes happening in the volatile oil market.

It is a well known fact that the member countries hardly stick to the quotas in place. Saudi Arabia has been producing well over its ceiling limits, Venezuela and Nigeria were finding it hard to get near to their allotted quota, no limits exist for Iraq.

“Overall, the difference between average actual production by the 10 members with quotas and the existing ceiling was only about 50,000 bpd”, Daukoru, the man presently at the helm of OPEC said.

“We will take one thing at a time and stabilize the market first. We are just taking practical measures. None of what we are doing is to make a permanent arrangement. What we are doing is just reacting to what is happening in the market." He added.

"The time to do something is...now because we don't know where the floor of this drop will end. It would be foolish to wait till it gets to $10 before we do anything because that would really kill the capacity initiatives," he said.

“Any production-cut programme without a Saudi commitment would be ineffective,’’ said Makoto Takeda, an energy analyst at Bansei Securities Co in Tokyo.

OPEC's 11 members are Iran, Saudi Arabia, Venezuela, Iraq, U.A.E, Nigeria, Kuwait, Libya, Indonesia, Qatar and Algeria and the majority of the stocks come from the Persian Gulf.