Opec may scrap the price band on crude

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The Independent Online
In the face of crumbling global demand, Opec could be on the brink of abandoning its historic $22-to-$28 price target band for a barrel of crude. The oil cartel's next meeting, scheduled for 14 November, was always billed as volatile, but speculation is mounting that it may produce the most significant decision for a decade.</p>One source, a regular adviser to Opec who asked not to be named, said: "Dropping the longstanding price band may stick in the craw, but Saudi Arabia will soon realise that dropping it is the only way to save a bit of face."</p>Opec's problems have become far more severe since the terrorist attacks on the US, and the mounting hostilities in Afghanistan. A slump in global demand for oil has forced the crude price below $22 for more than a month, and Opec does not seem to have the ability to hold it up. Falling demand has also meant that Opec members, especially poorer ones such as Venezuela, are less likely to stick to production quotas even if they are reduced.</p>Other wild cards in the game are the non-Opec oil producers including Russia and Mexico, which generate about 60 per cent of the world's oil, and are also unlikely to cut production to protect prices. Oil analysts in the City feel Opec's next move may be to admit the band is no longer defensible.</p>Jeremy Elden, of Lehman Brothers, said: "In the face of lower demand, rising non-Opec supply, and with three quota cuts already this year, Opec is finding it increasingly difficult to meet its output quotas. Some members appear to be laying the ground for a lowering of the band."</p>Gilbert Jenkins, a leading independent oil analyst, said: "We have reached the point where no amount of cutting by Saudi and the others will make a difference to crude prices. Getting rid of the band will preserve some credibility." </p>