The ranks of oil producing countries are closing, but don't expect the newfound solidarity to translate into any meaningful price increases.
On the other hand, oil prices continue to be more a function of the economy's strength than vice versa, so don't expect huge macroeconomic benefits to accrue from OPEC's inability to prop them up.
Even if OPEC and non-OPEC countries agree to big production cuts, any deal will be largely cosmetic, analysts said. While oil exporters want to stop prices from sliding further, most of the players will probably cheat.
Russia announced Wednesday that it would reduce its oil production by 150,000 barrels a day starting Jan. 1, while Norway has agreed to a cut of between 100,000 barrels and 200,000 barrels. Two other non-member countries, Mexico and Oman, have pledged their own cuts, which could bring the total to around 440,000. That means nonmember countries are approaching targets that would trigger OPEC's own cuts.
The oil cartel promised in November to cut its output by 1.5 million barrels if nonmembers reduced production by 500,000 barrels. Secretary General Ali Rodriguez reiterated that call Thursday and said he is trying to secure the remaining output cuts from nonmembers Angola, Egypt, Equatorial Guinea, Kazakhstan and Sudan.
Analysts think OPEC and non-OPEC countries will cut just half of the combined 2 million barrels in the end, something they say would keep prices at around $20 -- at least until the economy recovers. Oil prices rose Tuesday night in anticipation of Russia's announcement, but fell back by the end of the Wednesday to close at $19.47. A U.S. government energy-market forecaster, meanwhile, cut its projection today for average imported crude in 2002 to $18.69 a barrel from $19.92 barrel.
Some expect any deal to be a cosmetic solution to a problem created when OPEC made its own production cuts contingent on non-member countries' moves. Russia's announced cuts, for example, happen to coincide with a seasonal drop in its oil exports. For the past three winters, the country's crude exports have dropped by about 130,000 a day. Many of the country's biggest oil companies were adamantly opposed to production cut plans. And no one will know for sure how much the country has cut until February, when its exports are reported.
"The whole thing has to be looked at as a bit of a charade," said Tom Petrie of energy investment bank and research house Petrie Parkman. "OPEC kind of did something that was counterintuitive and unadvisable in that they laid down the 1.5-million-barrel-a day gauntlet. No one thinks OPEC will do 1.5 million barrels or that non-OPEC will do 500,000."
Indeed, OPEC itself has already cheated, implementing only about 70% of the 3.5 million barrels a day it says it cut through September, analysts said.
"Incentives to cheat will be very high," said Ethan Harris, senioreconomist at Lehman Brothers. "The global economy is still in recession, and it's likely to continue through the first quarter. Demand is likely to continue to slow."
A lot of these countries rely heavily on oil to support their budgets, and have been hard hit by declining prices. Around $36 last November, oil prices fell to $18 shortly after Sept. 11. Crude oil demand was pancake-flat this year, and only the most optimistic of forecasters think it will recover by the second half of next year.
"You're going to see prices range-bound until next year, until there's further evidence of a synchronized global upturn," said Joseph Quinlan, senior global economist Morgan Stanley Dean Witter. "That has yet to be determined by the vigor of the U.S. economy in the first quarter."
In the meantime, most of the oil exporters have excess capacity and are scheduled to bring new production online next year. Russia, forexample, is slated to increase capacity by 400,000 barrels a day in theyear ahead.