Fair price at hard times

It might be intriguing to define the "fair price" in the unfolding rainy days, since the exploiting costs among the OPEC members are inevitably uneven.

A Morgan Stanley report released in early October revealed that the United Arab Emirates' fiscal accounts would remain balanced even if oil prices were to drop to around US$25 a barrel, and it would remain in surplus even at the current prices.

According to an International Monetary Fund report, Iran, the traditional hawk in OPEC, would suffer from deficit in current account in the near future if the oil is priced below US$75.

Saudi King Abdullah bin Abudul-Aziz told a Kuwaiti newspaper Al-Seyassah on Nov. 29 that oil should be priced at US$75 a barrel, setting a benchmark for the next round of cuts.

The king's definition of "fair price" was endorsed by experts, who downplayed a widespread fallacy that a higher price will prolong the current global economic downturn.

"King Abdullah's recently announced target price of US$75 per barrel is spot on," Lauerman said.

"We do believe that the US$75 per barrel level proclaimed by the king ... is probably the best estimate of the fair price." Jakob said, adding that the declining price only helps the U.S. consumers. "The world is being hurt rather than being helped by the current oil prices."

According to a PetroMatrix report, gasoline at the U.S. pumps was 40 percent lower than a year ago, but consumers of other major economies still suffer from the sticky energy prices.

In Europe, the price of diesel is only 12 percent lower than a year ago. In China and India, the retail diesel prices are even 26percent and 9 percent higher respectively.

Diminishing clout of oil powers

Though a rebound of oil prices seems promising in the mid-term, the organization's primitive approach of "Slash for Cash" is not as effective as it was in 1980s, when the OPEC stunned the world by boosting the price from US$2.64 a barrel in 1972 to US$11.17 in 1974 and then to US$35.1 in 1981.

A dearth of unity among OPEC members marred the cartel's action and diluted its influence on prices. A case in point is the recent Cairo meeting, where Saudi Arabia, the most resilient producer, managed "to push the prices lower in order to force more OPEC compliance," noted Jakob.

The oil bloc is seeking for coordinate efforts to reduce output from non-OPEC members. Delegations from Russia, Oman, Azerbaijan and Syria also attended the Oran meeting as observers.

"We renew our call on the non-OPEC producers and exporters to cooperate with the Organization to support oil market stabilization," Khelil said in Oran.

Artificially keeping production low can lead to all sorts of ancillary issues, said Conley Turner, a senior research analyst with Wall Street Strategies, an independent market research company.

"The way things are now however provides a compelling incentive to comply," Turner said.

As for the popular accusations the oil powers have made towards the volatile Western future market where the oil is priced, oil experts recommend the producers develop a modern business approach.

"OPEC could instead use the future market to hedge more of their production at what they see the fair price," Jakob said.

(Xinhua News Agency December 18, 2008)