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Such is the secrecy surrounding oil production and exports that OPEC, as an organization, cannot rely on its own members’ energy ministries to provide accurate information on the amount of oil being exported. In countries such as Nigeria, beset by insurgency and massive oil theft, and Venezuela, where the government maintains that production is nearly 1 million b/d greater than reality, export figures are notoriously unreliable. To work around this problem, most oil traders, the IEA, and OPEC members themselves turn to information from the three leading “tanker-trackers” — Petro-Logistics, Oil Movements and Lloyd’s Intelligence Marine Unit.
With compliance from the two most recent cuts (total 2 million b/d) still unclear, OPEC decided to delay a decision on further production cuts until the meeting in Oran on December 17th. Although there was little cut in exports during October, preliminary information from November suggests that about 1.1 million b/d have been cut from peak August production.
As the Saudis usually swallow nearly 50 percent of OPEC production cuts, Riyadh obviously wants proof that all members are complying with their agreed upon production levels. Iran for example is thought to have cut its production by only 80,000 b/d during November, far less than its 199,000 share of the recent 1.5 million b/d cut.
Unity among the oil producers may be difficult to achieve for they face a varying set of economic circumstances. While the Saudis and the smaller Gulf producers are hurting, $50 oil is not the catastrophe for them that it is for Venezuela, Iran and Nigeria that already have severe fiscal problems. Iraq, which is exempt from the production quota, is actually planning to increase production by 250,000 b/d by linking new Kurdish oil production to the northern export pipeline into Turkey. Nigeria is threatening to ignore further OPEC mandated cuts.
In the short term, production cuts are certain to reduce an exporter’s revenue as worldwide oil supply currently is running well beyond consumption and stockpiles are growing. While revenues immediately go down with export cuts, there is no guarantee that prices will climb in the short run, thereby adding to the exporters’ fiscal problems. It may take many months to turn prices around if the world’s economic situation continues to deteriorate.
On Saturday, Saudi King Abdullah said in an interview that $75 a barrel would be a fair price for crude oil. This is the first time in years that the Saudis have mentioned a definite number for oil prices. While $75 may be adequate to support the Gulf States budgets and provide some revenue for investment, many new deepwater, tar sands, and heavy oil projects require still higher oil prices to be viable.
The key issue at the next meeting will be just who is going to do the cutting. OPEC continues to call on Russia to join them in lowering production. Statements by various senior Russian officials suggest that Moscow will attend the Oran meeting and “coordinate” its exports with OPEC to keep prices from becoming “too low or speculatively high.” Russia, which is highly dependent on oil revenue, is suffering from the decline in prices as much as any OPEC member.