Opec lays the ghost of Jakarta

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Javier Blas and Ed Crooks
The Organisation of the Petroleum Exporting Countries exorcised the ghost of Jakarta on Tuesday.
Coming to Vienna, Opec ministers were haunted by the memory of the meeting in November 1997 in the Indonesian capital. At that time, oil was about $20 a barrel and Saudi Arabia, on signals of new demand from China, persuaded Opec to increase its production by a large 10 per cent.
As that decision was made, the Asian financial crisis was beginning to unfold, cutting worldwide economic growth and oil demand. By early 1999, oil prices plunged as low as $8 a barrel, threatening Opec's existence.
But on Tuesday, in spite of the financial turbulence from the US subprime mortgage crisis, Saudi Arabia again persuaded Opec ministers to increase production levels, for the first time in more than two years. The kingdom, the largest oil producer, managed to overcome strong opposition, not only from traditional hawks such as Iran and Venezuela, but from several other countries such as Algeria and Libya.
Chakib Khelill, Algeria's oil minister, encapsulated their concerns when he warned Opec before the meeting to avoid repeating the "Jakarta mistake".
What the Saudis argued was that it was better to risk making that mistake again than to contribute to a global economic slowdown by forcing oil prices higher.
Announcing the decision, Abdallah el-Badri, Opec's secretary-general, said that the global economy had been forecast to grow at a 5 per cent rate next year, but that the subprime crisis had put "some clouds" over that outlook. "We would like it if we can keep that 5 per cent without making any adjustment," Mr Badri said.
In its effort to sustain growth, Opec has gone further than just increasing its production by 500,000 barrels a day. It has also formalised the 900,000 b/d that the cartel's 10 members bound by quotas have been producing above the 25.8m b/d official ceiling agreed last December.
In total, Opec has raised its output by 1.4m b/d, almost fully reversing the 1.7m b/d reduction agreed in two stages last year as the cartel tried to prop up falling oil prices.
Hasan Qabazard, Opec's chief economist, said the group wanted to make a positive contribution to the world economy.
"We are trying to avert a slowdown," Mr Qabazar told the Financial Times. "We are trying, hopefully, to reduce high oil prices, to have prices that are more conductive to economic development. We are afraid that prices may play a role in the slowdown and we want to avert that, if possible."
As the credit squeeze tightens, it may turn out that Opec's contribution to averting a slowdown has been irrelevant.
The International Energy Agency, the industrialised countries' energy watchdog, said Opec had not done enough and should have raised production by more.
Mr Qabazard also left open the possibility of Opec's reversing the production rise at its next meeting, in December in Abu Dhabi. The group said it would be "vigilant" in watching the balance of supply and demand.
His comments show that although Opec may no longer be possessed by the ghost of Jakarta, it has not lost its memory.
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Under Syndication
arragengment with FE