June 12th, 2012
02:16 PM GMT
Vienna, Austria (CNN) – It is shaping up to be an intriguing two days in Vienna. Ministers with some of the largest oil reserves in the world will gather Thursday to determine if the more than $25 slide in global energy prices requires urgent action. Ahead of the ministerial meeting, they will meet with their counterparts from the private sector and air their views at the OPEC seminar Wednesday at the Hofburg Palace, before an audience of 1,200 energy executives.
Uprisings throughout North Africa - which shut down 90% of Libya's oil production for months - military exercises in the Strait of Hormuz, and rising demand from China kept markets on edge and drove prices higher last year and through the first quarter of 2012.
In just two months, the tide has turned on prices and the dozen members of the group may have difficulty trying to reverse the downward momentum.
"You don't want to be defending an oil price when it's falling," said Sean Evers, CEO of Gulf Intelligence, "You want to put the fences up first before that happens. I think in this instance, it's possibly too late for OPEC to try and defend $100 a barrel."
It sets the stage in Vienna for a classic OPEC tug of war. On one side the price hawks like Iran and Venezuela, who want to maximize revenues, versus those known as the doves, led by Saudi Arabia and the UAE, that don't want to kill off an economic recovery with high oil prices.
Ahead of the meeting both Iran and Venezuela, while avoiding Saudi Arabia directly, said the production agreement set back in December of 30 million barrels a day should be adhered to. Official figures from the International Energy Forum in Riyadh suggest they are at least one and a half million barrels above that target.
Those comments were quickly followed up by the kingdom's long-serving oil minister Ali Al Naimi who told the Gulf Oil Review this week: "Our analysis suggest that we will need a higher ceiling than currently exists."
It is a difficult balancing act. In the post-Arab Spring environment, the major Gulf states have ramped up public spending on education, housing and their shiny new skylines. To support that effort, analysts say they need to attempt to put a floor on prices at $80 a barrel.
This meeting will be brokered by the veteran Secretary General of OPEC, the Libyan Abdullah El Badri, who is finishing his second term in that role.
"I think there is this general atmosphere of mutual suspicion that leads to this tense situation amongst key Opec members, particularly Saudi Arabia and Iran," said Mehdi Varzi of the consultancy that bears his name.
It is complicated by Iran's nuclear ambitions and European sanctions that go into effect July 1 against Iranian oil exports of nearly 600,000 barrels a day. U.S. Secretary of State Hillary Clinton announced Monday that 18 countries have joined the effort to reduce Iranian crude exports, turning up the heat on Tehran.
In preparation of the July 1 deadline, Saudi Arabia delivered on its pledge made back in January to CNN while I was in the oil-rich Eastern Province of the Kingdom to keep the market well supplied.
"I believe we can easily get up to 11.4 to 11.8 million (barrels per day) almost immediately in a few days, because all we need to do is turn the valves," minister Al Naimi said with a confident gesture, turning his hands to illustrate the point. Saudi Arabia crossed over 10 million barrels in April according to OPEC figures, the highest output in three decades.
In the meantime, both Iraq and Libya raised their own output after conflict, helping in that effort. This took OPEC production to its highest level since 2008, but the effort back then led to severe consequences.
By mid-July of that year, oil prices hit $147 a barrel only to plummet more than $100 a barrel in the second half of the year, when the Lehman crisis set in. No one sitting around the table Thursday wants to see a repeat of that performance, but finding a happy medium to balance demands of two very distinct camps - the hawks and doves - won't be easy.
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