Saudi Arabia yesterday vowed OPEC would not blink first in a showdown with rival producers over oil output curbs and urged Russia to cut supplies further or face the consequences of a price collapse.
Saudi's Mr Ali al-Naimi, oil minister for OPEC's largest producer, said the cartel would "absolutely not" cut output unless Russia made a sizeable contribution to supply curbs. And Kuwaiti oil minister Adel al-Subaih said there could be a repeat of the 1998 price crash when oil fell to $10 a barrel.
The warnings came the day after OPEC offered to remove 1.5 million barrels per day, or 6 per cent of its supplies, starting in January - but only if independent non-OPEC producers reduced their output by 500,000 barrels per day.
Meanwhile, oil's price slump deepened, taking crude's losses to 18 per cent in two days. Brent blend for January closed down $1.82 at $17.35 a barrel, after losing $2 the day before.
"We make the appeal especially to Russia, to heed the lessons of the past," Mr Naimi told reporters, referring to previous price slumps in 1986 and 1998. OPEC has already lowered output limits three times this year, but with demand sapped by slowing economic growth, it has seen world inventories pushed into surplus while output from rivals grows.
Lower OPEC limits would have left output by the group at its tightest in 10 years. "We are recognising our limitations," said OPEC Secretary-General Ali Rodriguez.
"OPEC is trying to bring the crisis to a head," said veteran OPEC-watcher Mr Mehdi Varzi of Dresdner Kleinwort Wasserstein. "It's a very high-risk strategy." Mr Rodriguez said OPEC was prepared for the consequences of a decision that could hit the economies of the cartel, which are heavily dependent on petroleum exports.
But after two years of expensive oil, he said OPEC could weather a period of lower prices - having built up billions of dollars of foreign currency reserves. Although some analysts are calling OPEC's strategy a price war, Saudi's Mr Naimi insisted he was only making an appeal to non-OPEC producers to help stabilise the market.
Signs emerged on Thursday that OPEC's tough stand was already beginning to change attitudes among some independent producers. Mexico announced that it would cut oil exports by up to 100,000 barrels per day from January and Norway, altering its position, said it might be willing to trim output. Saudi Arabia has its sights trained squarely on Russia, the world's second-largest exporter, where supplies have risen sharply over the past two years.
Russian Prime Minister Mikhail Kasyanov said: "We are not going to at any time reduce production on a big scale, it's impossible. Perhaps we could cut some production for some time to achieve a fair price."
