OPEC TO CUT 3 MBPD HOPING TO SEND OIL PRICES UP
By an Oil Correspondent
WIEN 25TH JUNE (IPS) Amid a continuing weak oil market, ministers of the Organisation of Petroleum Exporting Countries (OPEC) decided to cut their overall production by 2.6 millions barrels per day (bpd).
Bizhan Namdar Zanganeh, Iran's Oil Minister and the current president of the OPEC Monitoring Committee said the new cuts will be introduced as from next July and hoped that if the decision is upheld by all the 11 members of the oil exporting cartel, prices will start to go up.
Talking to reporters in Vienna, he said all cuts added to each other, OPEC and some none OPEC producing countries like Russia, Norway, Oman and Mexico will withdraw more than 3 millions bpd from oil market.
With no prospect for an immediate recovery at hand, the dramatic, if not devastating fall in the price of oil is placing unprecedented burden on the budget of many exporters, most of them, like Iran, Saudi Arabia, Nigeria and Algeria depending up to more than 75 per cent on the revenues from the commodity, according to senior oil analysts.
Since the start of this year, the "black gold" has lost more than 40 per cent of its value, crumbling from 18 US Dollars per barrel in January to under 13 for the brent, or the North Sea oil reference, its lowest level since 1988. This means that average Persian Gulf oil is selling at around 12 US Dollars and the Iranian one at around 12 only.
"For each dollar lost on the barrel of oil, Saudi Arabia, world's largest producer and exporter, looses 2.5 billions US Dollars in a year", noted an oil expert. "Iran is going to face one of its worst years in the economic field" added another one.
The dwindling oil prices have put severe burden on the economies of all oil exporting countries but particularly those of the Persian Gulf as most of them provides their rapidly increasing populations basic services and foodstuff free or with heavy subsidies.
Iranian government of president ayatollah Mohammad Khatami had been forced to revise twice its original budget, lowering revenues from oil from a high of 17 billions US Dollars to an estimated 12 billions US dollars only.
The UAE Finance Minister has called for drastic restraint in government spending and Kuwait has already decided on a 25 per cent cut in state expenses.
Long time the arbiter if not the only decision maker of the world oil market, the11nation Organisation of Petroleum Exporting Countries (OPEC) has lost its grip and because of deepening internal tensions and conflicting interest, is incapable of regulating the markets.
Several factors have contributed to the present crisis, most important of them are over production by the OPEC by about 2 millions barrel per day (mbd) over its official ceiling of 27.5 mbd, the "collapse" of the most dynamic and oil consuming economies in South East Asia, a relatively mild winter which reduced consumption in the Western hemisphere, and last but not least, the return of Iraq to the market.
Analysts said if the organisation is serious and keep to the substantial cuts they agreed to for at least several months, until present reserves are exhausted, then it is possible to see prices start an upward trend.
Almost all OPEC members, chiefly Venezuela, Qatar, Nigeria, Kuwait and Saudi Arabia were producing more than their fixed quotas.
OPEC's last decision was reached after frantic consultations between Iran and Saudi Arabia, OPEC's two heavy weight producers and after Venezuela decided to revise its previous policy and cut its production as well.
But probably Iran is the country most badly affected by the cheap oil as it suffers from American sanctions which prevents it to get new technologies.
"Iran's oil installations and industries are outdated and exhausted. Most of the country's oilfields have run dry, or infiltrated with salt water. Since the Islamic revolution of 1979 and the introduction of sanctions imposed by the US on oil companies, there has been no major investment, no new technology. That is why Iran is producing some 300.000 barrels per day less than its OPEC quota" ,explained Dr Parviz Mina, an independent Paris-based international oil consultant.
That's why it is urgent for Iran to normalise its relations with the Great American Satan. And this had been the prime objective of the last official visit paid to Saudi Arabia by the ayatollah Ali Akbar Hashemi Rafsanjani, Islamic Iran's former president.
Because of diminishing revenues, Persian Gulf Sheikhdoms have send back millions of Asian and Arab workers who, once back to their original countries, have added to the crisis these governments are already facing. At the same time, all these countries have slashed on most of their development and are revising their military purchases which, in turn, will adversely affect on the industrial powers.
"This is a double edged sword. If at short range, the dwindling oil prices is good news for the economic recovery of major industrial powers, at the long run, it will certainly harm everyone, producer, exporter as well as consumer", pointed out an economist, warning that in case oil prices do not firm up, it may as well create social disorders both in some producing countries like Iran where the governments do not dispose enough foreign currency reserve to support a sustained crisis but also in some former South East Asian "tigers" which have lost their teeth, facing harsh economic difficulties.