Cairo - When Opec announced late last month it was cutting crude oil output by 1.5 million barrels per day, the market barely hiccuped.
Oil prices continued their fall amid global recessionary fears that have hit even oil-rich Gulf Arab nations, dropping far below the $80 to $100 per barrel that the Organisation of Petroleum Exporting Countries' members are hoping for. On Thursday, crude sank below $50 a barrel to levels last seen in early 2005.
If the cartel's earlier complaints about low prices elicited few tears in much of the world, the latest drop is even less likely to merit a sniffle.
These are, in short, trying times for Opec.
As the group heads into an informal meeting in Cairo on November 29, it finds itself in the ironic position of being unable to do what it has been angrily accused of doing before: propping up prices.
It is a lack of demand, and no longer Opec's ability to control supply, that is driving the price of oil.
"Opec is facing its toughest time in the last 10 years, because this the first real opportunity that the world has had to say, 'Opec members, we don't need your supplies,"' said Rob Laughlin, a London-based senior oil analyst with brokerage firm MF Global. "Everyone has been sucked into this recession."
Traumatising the global economy
Opec, supplier of 40% of the world's oil, knows this.
Only a few months ago were the best of times, when $147-a-barrel oil in mid-July was flooding its member states' treasuries.
But the current crisis - and the rate at which the situation has deteriorated - has forced Opec into a difficult balancing act.
It wants to boost prices to satisfy its members, but if it overreacts with too large a production cut, it could be blamed for worsening a financial meltdown that has battered world equity markets and shoved Japan and the 15-nation eurozone into a recession.
Opec's president, Algerian Oil Minister Chakib Khelil, is sounding cautious. He told Algeria's El Khabar newspaper in an interview on Wednesday that the Cairo meeting is an "internal debate" that is unlikely to result in a production cut. It may be better to wait until the December meeting in Algeria to act, he said.
Influencing prices without further traumatising the global economy could be difficult given the current financial meltdown.
"This is very much a demand-led market," said Damian Kennaby, a London-based analyst with oil consultancy Purvin & Gertz. "I think that Opec has found, after their last meeting, that whatever they do ... will have a very limited impact."
'Losing our credibility'
Days after the International Energy Agency cut its demand projections for 2009, Opec followed suit. This week, the group estimated that global oil demand would climb by just 0.6% next year, down from its estimate last month of 0.9%.
Another major problem for Opec is that the market often assumes its members will not abide by their quotas anyway, and will produce above any announced cuts.
Saudi Arabia, the cartel's kingpin and the only member with sufficient spare production capacity, has repeatedly acted as buffer against more hawkish members like Iran and Venezuela.
In September, Opec asked members to rein in 500 000 barrels of overproduction per day. Analysts say that call was largely ignored.
At its October 24 emergency meeting in Vienna, the group then announced a 1.5 million barrel per day reduction, to no effect. Crude prices have dropped dramatically since then.
Opec president Khelil warned of "losing our credibility" if the cartel announces new cuts, only to find that members are not complying with the cuts decided on in Austria.
But members are pressing for some sort of action. Iran in particular wants deep cuts this month.
Enforcement of quotas
Oil revenues account for 80% of Iran's government budget, and the IMF estimates that Tehran needs $90-a-barrel oil for 2008 fiscal accounts to break even. Every $1 per barrel decline translates into hundreds of millions of dollars in lost revenue annually.
War-ravaged Iraq is also suffering from the price drop. It has had to revise down the price of crude used to set its 2009 fiscal budget to $62.5 per barrel from $80. Oil revenues account for 90% of the government's budget.
Other key members, particularly Saudi Arabia and the Arab Gulf countries, are better able to weather the financial storm than the West because of massive, oil-fed cash surpluses.
Saudi Arabia's central bank, for example, says the kingdom's foreign assets could more than double to nearly $878bn at the end of 2010, according to Opec's November report.
But even there, signs of strain are emerging.
Stock exchanges in Kuwait, the United Arab Emirates and Saudi Arabia have fallen between 29% and 66% since January.
In Dubai, several developers have said they are re-examining staffing or even planning job cuts, stoking fears that the emirate's much heralded property boom faces serious dangers.
If members are reluctant to call a massive reduction in output, enforcement of quotas could have an effect, said Oliver Jakob, managing director Swiss oil market research firm Petromatrix.
"Maybe they want to send a message this time that they are complying with quotas 100%. It could be as effective as another 500 000 barrels per day in cuts accompanied by little compliance," said Jakob.
- AP