International finance, media and economic circles will focus this week on Quito, the capital of Ecuador, the smallest oil-exporting country, which is hosting an exceptional meeting of OPEC on Saturday (11 December) in light of last week's rise in oil prices to $90 a barrel. Ecuador joined OPEC in 1973 but withdrew from the organization in 1992, when its petroleum production dropped substantially. It then invested in its oil sector and revived its production to a level that allowed it to re-join OPEC at the summit held in Riyadh in 2009. Now, Ecuador is hosting for the second time an exceptional meeting of the organization (it did so in the early 1980s, when Ahmad Zaki Yamani was Saudi Arabia's oil minister). As long as supply and demand in oil markets are balanced, there is no need for OPEC countries to increase or decrease their production, because current market factors do not require this. However, prices have quickly surpassed the fair level for the price of oil that Saudi Arabia believes is suitable for consumers, producers, and the international economy, or between $70 and $90 a barrel, as Oil Minister Ali Nuaymi said. The current exceeding of this range that took place last week, when the price jumped above $90 a barrel, will not lead to an increase in production by OPEC and its largest exporter, Saudi Arabia, because supply and demand are balanced. In other words, an increase in production should be decided based on market factors and not the price level, which has recently been linked to financial markets and brokers who want to attract investors to oil futures markets. These markets test investors and publish information about the likelihood of the price of oil exceeding $100 a barrel, and work to encourage capitalists to invest and speculate in oil. Despite the financial problems and crises that American financial markets have witnessed, the practices of big financial institution brokers remain unchanged, to encourage investment in oil. OPEC, and more specifically Saudi Arabia, will not base the oil export and production strategy on price rises that are not connected to market fundamentals. Since there is no shortfall in supply, it will not increase its production, just as it will not reduce it as long as there is no surplus. Certainly, Saudi Arabia, which is the most important country in OPEC in terms of production, will monitor for weeks and months the evolution of market fundamentals and will wait and see if there is a true recovery in demand, and then pump quantities into the market that it had removed, to preserve market and price stability. Saudi Arabia now has around 4 million barrels a day of production capacity that is not being used. Saudi Arabia's strategy is to always retain a surplus production capacity of 1.5 to 2 million barrels a day, which are used to confront any sudden situation in supply in international markets. Saudi Arabia lowered its production around two years ago, in line with an OPEC decision to reduce production to protect oil prices from an imminent downturn. OPEC is not expected to officially change its production level, which it decided to do at the Oran meeting in Algeria some two years ago. However, a number of OPEC states have reduced the degree of their adherence to past reductions, in view of the improvement in prices. During OPEC's history, there have been many times when prices have risen, but non-adhering countries quickly grow fearful when they feel that oil prices are about to plummet. Up to now, OPEC has generally been able to prevent prices from dropping to levels that negatively impact their economies. The OPEC meeting in Quito, Ecuador, is not a protocol-dictated response to this country's call to host an exceptional meeting. However, the current situation is insufficient to confirm that there is a big rise in demand and insufficient supply. Despite the bitter cold in Europe and the expectation that demand will rise, OPEC will remain keen to monitor developments in market fundamentals before officially altering its production level. Oil prices are still at a level the Saudis want, which is between $70 and $90 a barrel.
