OPEC Ministers To Consider Cuts To Oil Production

Transcript

RENEE MONTAGNE, HOST:

OPEC, that once-powerful cartel of oil-producing states, is being closely watched once again. It's meeting in Vienna today at what, for OPEC, is a time of potential crisis with crude oil prices sliding steadily downwards. A meeting earlier this week between founding OPEC member Saudi Arabia and nonmember Russia failed to reach agreement on production cuts that would boost oil prices. NPR's Peter Kenyon joined us from the talks in Vienna. Good morning.

PETER KENYON, BYLINE: Good morning, Renee.

MONTAGNE: OK, it's been years since OPEC was seen as able to control the price of oil with its production decisions. So why is this meeting getting so much attention?

KENYON: Well, mainly because OPEC may not be as powerful as it once was, but Saudi Arabia does still carry some clout. And everybody wants to know just how long the Saudis might be willing to let the price slide before making some kind of move. So far, they've watched pretty calmly as it sank 30 percent since June, and that's putting a number of countries in a likely deficit situation with their budgets. Now, you would think this is good news for oil-importing countries, helping their economic growth, but so far, growth forecasts are pretty stagnant or slipping as well, which then in turn reduces demand for oil etc. So the question is, will the Saudis feel the pressure enough to organize a dramatic cut here? So far, the signs seem to suggest no.

MONTAGNE: One interesting thing, Peter, is that the slump in oil prices is hitting two countries that the West happens to be embroiled in political disputes with - Russia and Iran. What are people saying there about the sustained low prices?

KENYON: Well, there isn't any shortage of voices there in those two countries - and a few others - muttering about a U.S.-Saudi oil war against Iran and Russia. And it is true the West is trying to punish Russia for its Ukraine policies - also trying to pressure Iran on the nuclear issue. The theories are quite entertaining in many ways, but there is another, more business-oriented, possibility that the Saudis, far from teaming up with the U.S., are actually going after U.S. shale oil production. That's been the game-changer in the oil markets in recent years. The Saudis have some of the cheapest oil in the world to produce, whereas shale oil is relatively expensive. So this could be an effort to restrain the growth in American oil production.

MONTAGNE: Will that work, I mean, if the Saudis do allow the price to slip even more?

KENYON: Not immediately, at least according to most oil analysts. There's a range of estimates. Some say the breakeven price for shale oil is about $75 a barrel. some say it's as low as $60. At some point, in any event, American investment in new production becomes a losing proposition, but the price would probably have to come down a fair bit yet before we reach that point.

MONTAGNE: And how much would OPEC have to cut production today to really have an impact on the price?

KENYON: Again, some differing opinions, but the majority view seems to be that the fallback option of just trying to enforce the existing quotas, which are routinely violated - that's about 30 million barrels a day - really won't do much. Analysts say OPEC really needs to slash production by a million, a million and a half, barrels a day if they want to have a positive impact on the price.

MONTAGNE: And if they don't make those kind of cuts, what then happens to oil prices?

KENYON: Then we're hearing estimates of $60 oil, possibly even lower. Not everyone shares that view. some are betting the market's already taken this into account, that OPEC may not do much dramatic today. But over time, most agree the fundamental pressure on oil prices will be upward. The big questions are, when and how much?

MONTAGNE: That's NPR's Peter Kenyon at the OPEC meeting in Vienna. Thanks very much.

KENYON: You're welcome, Renee. Transcript provided by NPR, Copyright NPR.