Oil prices have dropped 25% in the past two weeks, the Financial Times noted, as it reported an effort on Indonesia's part to be exempted from a production cut being contemplated at an emergency OPEC meeting in Doha, the capital of Qatar.[1]  --  Oil industry correspondent Carola Hoyos observed that OPEC's fractiouness has led many to doubt its effectiveness:  "[I]nsiders say Ali Naimi, its powerful oil minister, is seething over the way the group has conducted itself in the past two weeks, starting with Nigeria and Venezuela's announcements they would voluntarily cut their production even though many dismissed these declarations as publicity stunts rather than serious decisions.  --  The group's meeting this evening is its chance to regain some credibility in the market and prove that the 11 members are capable of defending oil prices by cutting output for the first time since 2004."  --  Stocks of crude oil were reported sharply up in the U.S. on Wednesday, which "was seen by traders as providing further confirmation for OPEC's members of their view that global crude supplies remain plentiful," the Financial Times reported in a separate piece.[2] ...

1.

World

Asia-Pacific

INDONESIA ASKS FOR EXEMPTION AS OUTPUT CUTS DIVIDE OPEC
By Carola Hoyos

Financial Times (UK)
October 19, 2006

http://www.ft.com/cms/s/691a91d2-5f0e-11db-afac-0000779e2340.html DOHA -- Indonesia yesterday asked an emergency meeting of the Organization of the Oil Exporting Countries to exempt it from cuts in oil production by the cartel.

Maizar Rahman, Indonesia's OPEC governor, said: "We hope we don't have to cut as our production is very low."

He illustrated one of the difficulties that has befuddled the cartel as its members have struggled unsuccessfully to stem a 25 per cent drop in oil prices over the last two weeks.

Indonesia may be the only cartel member that has in recent years become a net oil importer, but it is far from the only one unable to fill the production quota it was given the last time OPEC cut output in 2004.

In fact, five of OPEC's 11 producers are unable to meet the upper limit. The others include: Venezuela, which failed to rebound from the devastating national strikes four years ago; Iraq, whose oil infrastructure has become the main target of saboteurs angered by the post-invasion chaos; Iran, whose restrictive investment policies and standoff with the West has limited foreign participation in its oil fields; and Nigeria, where rebels attack oil installations on a regular basis, highlighting the great disparity between the poverty of the country and its vast oil riches.

As world demand -- stoked by the U.S. and Chinese economic growth -- outpaced supply, OPEC's other six members brushed aside their own quotas and increased production. Algeria, Saudi Arabia, Kuwait, and the United Arab Emirates have especially benefited as they were able to ramp up their output to take advantage of the trebling of oil prices over the past four years.

Algeria now pumps 52 per cent more than its quota and Libya is 17 per cent above its limit. Both have recently aggressively courted international energy companies to help them boost production.

Saudi Arabia, which in the past two months cut back to just 1 per cent above its quota, was until late last year pumping 9.6m barrels a day -- 500,000 b/d more than its official limit.

Many of the countries that have struggled feel their more fortunate brethren should shoulder most of the responsibility in reducing OPEC's overall production now that demand has slowed and prices have fallen more than 25 per cent.

This has split OPEC. Over the past two weeks cartel officials have contradicted each other about whether the group had reached an agreement; whether it would reduce its production from countries' quotas or from their actual production; and even whether the group would hold today's emergency meeting.

Sheikh Ali al-Jarrah al -Sabah, Kuwait's oil minister, yesterday suggested some members of OPEC wanted to cut more than the agreed 1m barrels a day.

All this has undermined the market's confidence in OPEC's ability to act. In recent days, the price of international benchmark oil fell below $58 a barrel, pushing the value of Opec's oil to below the group's $55 a barrel comfort zone.

The disunity has alarmed and angered Opec members. Saudi Arabia, the world's biggest exporter, has remained silent. But insiders say Ali Naimi, its powerful oil minister, is seething over the way the group has conducted itself in the past two weeks, starting with Nigeria and Venezuela's announcements they would voluntarily cut their production even though many dismissed these declarations as publicity stunts rather than serious decisions.

The group's meeting this evening is its chance to regain some credibility in the market and prove that the 11 members are capable of defending oil prices by cutting output for the first time since 2004. In theory the meeting is expected to finish today, but ministers have warned they could be up until early tomorrow morning. Indonesia's opening salvo yesterday indicated just how much work still lies ahead of the group, not only in finding an agreement but in persuading markets that members will stick to it.

2.

SURPRISING HOARD OF U.S. CRUDE WEAKENS OIL PRICE
By Chris Flood

Financial Times (UK)
October 19, 2006

http://www.ft.com/cms/s/c7e5ecf8-5f0d-11db-afac-0000779e2340.html

Oil prices fell yesterday after news of a much larger-than-expected increase in U.S. crude stocks last week. But the main focus of the market remained the meeting of the Organization of Petroleum Exporting Countries, scheduled for today.

ICE December Brent fell $1.36 to $59.58 a barrel while Nymex November West Texas Intermediate lost $1.28 to close at $57.65 a barrel.

Although the inventories data announced by the Energy Information Administration provided genuine surprises, the market reaction was limited as traders pondered how OPEC's members would view the figures.

The EIA said U.S. crude stocks rose 5.1m barrels last week, well above the consensus market forecast for an increase of 1.3m barrels. This was seen by traders as providing further confirmation for OPEC's members of their view that global crude supplies remain plentiful.

Crude inventories rose strongly because U.S. refineries have stepped up autumn maintenance programs, reflected in a fall in the capacity utilization ratio to 86.3 per cent.

Kuwait's energy minister said that OPEC had agreed to cut production from actual output -- running at 27.5m barrels a day in September, rather than the official quota of 28m barrels a day.

Sheikh Ali al-Jarrah al-Sabah also said that some hawkish OPEC ministers were pushing for a larger reduction.

The market has already priced in a 1m barrel a day cut and some investors believe OPEC will reduce output further before the end of the year if crude prices continue to weaken.

NYMEX November heating oil rose 0.5 cents to $1.7387 a gallon after a fall of 4.5m barrels in distillate stocks, well above the consensus forecast for a 0.7m barrel decline.

NYMEX November unleaded gasoline gained just under 2 cents at $1.4800 a gallon after stocks fell 5.2m barrels, also well above the consensus forecast for a 0.3m barrel decline.

Zinc firmed 0.5 per cent to $3,885 a ton after it hit a record $4,020 in the previous session as stocks shrank to their lowest level since 1991.

Nickel fell 1.4 per cent to $30,950 a ton after hitting a record $32,050 on Tuesday. Steve Barnett, president of the Nickel Institute, told a conference in Australia that a primary nickel supply deficit was likely to emerge over the next decade as new and existing mine production struggled to keep up with "phenomenal" demand for stainless steel.

Tin fell 3 per cent to $9,700 a ton after it hit a record $11,000 on Monday, spurred by supply concerns in Indonesia and Bolvia.

Gold was rangebound, awaiting clearer direction from oil and was at $592.80 a troy ounce in late trade.