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| Tuesday, 3 August 2004 |
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OPEC hikes output to bring price relief From George Chakko, Vienna OPEC Secretary-General Dr. Purnomo Yusgiantoro, the Indonesian Minister of Energy and Mineral Resource and current Opec Conference President, announced recently at a special press briefing here that OPEC Heads of Governments have decided to raise crude production by an additional 500,000 bls/d (barrels a day) effective August 1 this year to usher in some price relief on the international market. Crude prices had systematically sky-rocketed to unaffordable highs world-wide in spite of repeated production cuts and hikes. OPEC cancelled the July oil minister summit indicating it unanimously understood the grim damage current high prices beget world economy, hampering growth, an output hike decision dispensing with the need of a special summit. Since their extraordinary Beirut meeting last March Opec has boosted output by almost 3 mb/d (million barrels a day) to the current total of 26 mb/d. The expected Opec announcement was supposed to bring crude prices down at Nymex (New York Mercantile Exchange) and IPE (International Petroleum Exchange), London. Instead Opec's seven basket crudes (Algeria's Saharan Blend, Indonesia's Minas, Nigeria's Bonny Light, Saudi Arabia's Arabian Light, Dubai of the United Arab Emirates, Venezuela's Tia Juana,and Mexico's Isthmus crude.) rose by 44 cents to (according to OPECNA, Opec's news wing) $36.60/bl (previous $36.16), but the American benchmark crude WTI (West Texas Intermediate) after slipping 78 cents to $ 40.86/bl rose by 78 cents to $41.36/bl for September delivery with October contract standing markedly down by about a dollar at $40.44. These prices still are very high compared to the Opec basket crude price band of $22 to $28 / bl. The price of the basket in 2003 averaged 28.10 dollars a barrel, compared with 24.36 dollars the previous year. Experts here believe prices will not slump overnight, nor in few weeks for number of reasons. 1) Economic growth has picked up gradually globally, especially in Asia, boosting demand for oil. Yusgiantoro called it,"robust growth in demand in the US and China which had not been fully anticipated". 2) China's "overheating" economy over 11% annual growth is boosting its own oil consumption substantially (61 mill. tonnes), ensuring more crude sales, catalysing world oil demand as well. China and India alone supposedly share 38% of world oil consumption followed by the U.S. with 25% (recent FT report). 3) The political and oil extraction uncertainties in Iraq (installation sabotage) and Venezuela (strikes) inducing speculators to churn prices high. 4) Stock shortage of gasoline in the U.S. Last but not the least, 5) President Bush's tirade against Iran, a major world oil producer, in terms of possible embargo action implication, due to its alleged nuclear weapon plans and terrorism shield. Albeit meant for home consumption in an election year, it introduces additional uncertainty into the market. One truth OPECNA underlines is: "Technical trading, one session ahead of the expiry of the August crude contract, was mainly responsible for crude flirting with the upper limits of its range. Traders cited the nervousness of the smaller players who simply follow the herd, while the bigger swept up long positions hoping for truth in the rising demand rumor mill". Analysts here believe this roulette game will continue with speculators and futures playing decisive roles in price dip and surge. Nevertheless, Opec has time till September 15, this year when the next Opec ministerial meet is scheduled in Vienna, to review market results of their current decision and take possible action. With summer vacation on in the Northern Hemisphere and highways aflood of holiday cars activating a gasoline peak season, Opec can sit rest assured their revenue will remain high with marginal price drop of maximum a dollar or two a barrel, untoward political factors creeping is not presupposed. Opec has one precautionary card up its sleeves for price stability. Said Yusgiantoro, "Opec member countries are also investing vast resources to increase production capacity by an expected 2. 5 - 3 mb/d ju the short term, depending on the call on OPEC oil." The US Fed Reserve chief Alan Greenspan even commended Opec's move, saying that OPEC "essentially opened up the taps as best one can judge". The next two quarters will show if Opec's measures were of any help to relieve world's poor man with empty wallet, after having paid a heavy survival price for oil. |
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