OPEC’s divisions will be on display at meeting

updated 5:16 p.m. ET Dec. 14, 2008

CAIRO, Egypt - OPEC, the oil-producing group that consumers worldwide love to hate, is fine tuning its strategy heading into a meeting this week in Algeria, determined that its fourth attempt in as many months to reverse plummeting crude oil prices will succeed.

Working against the Organization of Petroleum Exporting Countries is its own past — a history pockmarked with the rival priorities of its 13 member states and major policy blunders in times of economic crises.

One only need to look back two weeks when the group met in Cairo and postponed a decision on production cuts until Wednesday's meeting in Oran, Algeria, sending crude prices tumbling to $40 a barrel, the lowest level since 2004.

OPEC members' fractious relationships have made it difficult to control supply, and thus price, in both good times and bad, said Edward Chow, senior fellow at the Washington-based Center for Strategic and International Studies' Energy Security program.

"The experience in the last 20 years suggests that they will have a hard time" defending a price floor, he said, noting the group had similar problems when crude rocketed to nearly $150 a barrel in July.

"They've been riding the roller coaster rather than managing supply," Chow added.

David Kirsch, oil analyst with Washington-based consultancy PFC Energy, said Saudi Arabia, the group's largest producer and de facto leader, may have allowed crude to tumble as a warning to other members of what's in store should they fail to adhere to production cuts immediately.

"Definitely, they were playing a game of chicken going into Cairo," said Kirsch. "I don't think they're doing that any more."

Cooperation from non-OPEC nations like Russia may help, though it remains unclear whether Moscow will offer anything more than moral support. Its production is on the decline and the oil giant may already be in recession.

OPEC President Chakib Khelil said the best way to get a reaction from the oil market is to "surprise" it, suggesting a cut even larger than the expected 1.5 million to 2 million barrels per day.

That strategy has backfired before, however, leaving the impression that OPEC is turning the screws when the global economy is at its weakest.

The other half of OPEC's strategy is selling a concept that has rarely been received well by Western nations: a "fair" price for oil, rather than what the market is willing to pay. Saudi King Abdullah has put a fair price tag at about $75 a barrel.

It is not only OPEC that thinks depressed oil prices may be setting the globe up for another price shock when the economy rebounds — the Paris-based International Energy Agency and U.S. Department of Energy are among the believers.

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