Against a backdrop of falling oil prices and a tense international climate, OPEC met on 26 September and agreed to keep output stable - for now. By the time of the meeting, the OPEC basket of crudes had fallen to $19.87 a barrel, its lowest for 18 months and significantly less than the target price floor of $22 a barrel. In August, the temptation would have been to cut output, but the organisation has promised to keep supply steady to help support the global economy. Saudi Petroleum & Minerals Resources Minister Ali Naimi pledged to cover any shortages in the market after the 11 September attacks on the US.

There are indications that the organisation will meet again in early November to monitor the situation. 'Let's not take drastic actions. OPEC should not rush into decisions,' Naimi said before the meeting. 'We must hold steady and watch this for a while.' The price has fluctuated significantly in the weeks following the attacks, with the benchmark Brent crude rising to more than $30 a barrel in the immediate aftermath.

The organisation agreed last year upon an automatic mechanism to alter production by 1 million barrels a day (b/d) if the price strayed outside the target band for more than 10 consecutive days. 'We want a $25-a-barrel stable price,' said Algeria's Chakib Khelil, president of the OPEC conference, on 25 September. 'We have a mechanism, so we just apply the mechanism.'

However, the latest cut of 1 million b/d, effective from 1 September, has not yet been felt on international markets because of the time lag between production and delivery. There is also some evidence that members are not fully complying with their quotas. OPEC on 21 September released data showing its August production stood at 27.7 million b/d, some 15 per cent more than its official quota before the cuts came into effect.

OPEC ministers say the price instability is a short-term reaction to the political situation and that the price will return to its target band soon. 'I think the current situation is not because of the fundamentals in the market,' said Iranian Oil Minister Bijan Namdar Zanganeh on 25 September. 'I believe there is no reason to panic.'

But analysts have been saying for some time that the target price of $25 a barrel is unrealistic and have forecast a sharp slump. They point to a strong picture of falling demand growth in the US and the Far East as the global economic slowdown takes hold. The attacks on the US have contributed to that slowdown and are consequently expected to deliver a further blow to oil demand growth. Alongside the poor demand picture, there is clearly ample supply, with OPEC alone holding spare capacity of 4 million b/d. Non-OPEC production has also increased, contributing to a fear among OPEC nations that they will lose market share.