Word: opec
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Once that prospect was clear, investors sold highflying stocks and weak performers alike. Oil stocks were among the biggest losers. A key reason was the failure two weeks ago of the 13-nation OPEC oil cartel to agree on a uniform price for petroleum exports...
...force down the prices charged by OPEC's hardliners, Saudi Arabia since last October has been pumping upwards of 10.3 million bbl. per day of crude, or 20% more than normal, and selling it for a base price of $32 per bbl., the lowest available from any OPEC member. The result: a temporary worldwide miniglut that has swelled inventories in the consuming nations and put pressure on oil exporters to cut prices...
...start of last week's Geneva meeting, oil experts believed Saudi Arabia's tactics had paid off and that a behind-the-scenes compromise deal had been cooked up. The purported agreement: the Saudis would raise their price to $34 per bbl., while the rest of OPEC would drop down to match it. In return, Saudi Arabia would cut production to about 8.5 million bbl. daily, thereby tightening the market and helping to support the new price...
...accept a compromise at $35 per bbl. But the effort came to nothing. As a belated gesture of good will, Yamani announced as soon as the conference ended that, although his country was sticking by its $32-per-bbl. price, it would nonetheless help tighten the market for other OPEC producers by cutting Saudi production by 1 million bbl. daily in September...
Last week's debacle in Geneva will keep downward pressure on world oil markets in spite of the Saudi cut, at least for a while. But the price relief could be surprisingly short-lived. Reduced OPEC production has already begun to work off the global crude surplus. Constantine Fliakos, an oil analyst with the Merrill Lynch investment firm, calculates that world oil production is now falling short of demand by at least 1 million bbl. per day. Autumn, when northern countries prepare for winter, is normally a period of increased energy demand. And, although oil tanks are full, they...