Depressed oil prices create tensions in OPEC

28 November 2008

The continuing slump in oil prices has led to tensions within OPEC. With oil producers taking a triple beating on low prices, falling demand and declining revenues, the global cartel, whose members account for more than 40 per cent of global oil exports, is desperately seeking ways to halt the slide. OPEC members are  calling for further production cuts on top of those already in place and the oil cartel has called for a meeting to decide on the issue.

However, it may not be easy for OPEC to come to an agreement as there sharp divisions between the members with the larger ones like Saudi Arabia favouring a moderate approach while others like Iran and Venezuela are pitching for more aggressive measures.

While Saudi Arabia can afford a period of lower oil prices, countries like Iran and Venezuela that are more dependent on high prices can be expected to favour an entirely different approach. There have been clashes between the groups in the past and with the rising tensions the differences are likely to come out in the open once again during the OPEC meet in Cairo on Saturday.

As oil prices started sliding after surging to all time highs in June, OPEC agreed to effect production cuts by two million barrels a day. According to analysts, members are generally abiding by their pledge but the market has failed to respond and the desired effects have not materialised.

Since the last meeting a month back, OPEC's reference basket price, which is an average of oil grades sold by producers had plummeted by more than half and plumbed to $42 last week. 

While the traditional hawks have been pitching for aggressive production cuts, there are voices that are calling for coordinating with non-OPEC producers to help stabilise the market.