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| Monday, 12 April 2004 |
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OPEC cuts output, price drop uncertain From George Chakko, Vienna, At their 130th Meeting of the OPEC Conference (Organisation of the Petroleum Exporting Countries) in Vienna last week OPEC decided to carry through a joint crude output cut by one million barrels a day (mb/d) to an OPEC total of 23. 5 mb/d (excluding Iraq), effective April 1 this year. However, even on the second day after OPEC decision crude oil price remained stubborn at both the New York Mercantile Exchange and the London Exchange at $ 32.19/bl (per barrel) for Brent [$32. 41/bl on Wednesday] and $ 33. 24/bl for Bonny Light and $35.78 for West Texas Intermediate (WTI). It proved that enough oil is lying around the world through over-production, including OPEC's own, and that speculators are at hard work on price updrift manipulations.
Whereas the rich countries can afford to pay the high price for oil and OPEC earns well through the high price, hopes of non-oil developing and poor countries (DCs and LDCs) for a favourable market reaction in immediate price drop has been dashed, even though their energy consumption is remarkably low. Even OPEC Fund (a $ 5 billion loan agency of the OPEC for the DCs) help is a far cry in ameliorating the financial burden of the poor. The decision comes at a time of April-June quarter, traditionally a low demand time before world consumption is expected to rise due to summer vacation when automobiles are expected to flood roads. OPEC adduces the high price to speculators in financial markets playing havoc with oil price; pushing up artificially to $6/bl.. OPEC's main fear is that over-supply could landslide the prices to much lower than the OPEC basket reference price (a common benchmark price of all crude oil sorts - heavy and light crudes) of $22-28/bl. The traditional OPEC axiom is that if the market price is much above the basket price range, as is now the case, OPEC automatically goes in for an output hike. Should the reverse be the case, i.e. price downsliding to below $20/bl, then OPEC opts for production hike. This is not the case this time. At the concluding press briefing Conference President Dr. Pumomo Yusgiantoro, Indonesian Minister of Energy & Mineral Resources, admitted OPEC's own failure in production quota discipline. Professional watchers like the Global Energy Studies (GES), London, however had monitored OPEC's excess production with figures at 1. 455 mb/d for January-February. GES Executive Director and Chief Economist Dr. Leo Drollas gave Daily News the following OPEC-overproduction figures (in thousand barrels a day- tbl/d) and the percentage rise with allowed official quota volume in mb/d in brackets: Saudi Arabia-522 - 6. 6% (8.533mb/d); Iran 289- 8%(3.732 mb/d); Kuwait-290- 14. 7% (1. 893 mbd); UAE - 42 - 1. 9% (2. 221 mbd); Qatar- 115 - 18. 2% (0. 755 mbd); Libya - 153 - 11. 7% (1. 405 mbd); Algeria - 337 - 43. 1% (1. 107mbd); Nigeria - 282 - 14% (2.158 mbd); Venezuela - 300 - 10. 6% (2. 327 mbd); Indonesia - 275 - 21. 7% (1. 034 mbd). Total excess production = 1. 455 mb/d ( 5. 9% OPEC average) with a total output volume of 26. 036 mb/d taking also into account the Neutral Zone's (between Kuwait & Saudi Arabia) production of 610 tbl/d against the allowed 607 tbl/d. These figures exclude Iraq's production of 2. 2 mb/d, rising from 1.3 mb/d an year ago. The GES figures point to self-cheating flourishing within OPEC. Member countries individually and selfishly want to make the best out of market high price, a classical bad habit inherent in OPEC group behaviour that caused umpteen inner OPEC wrangles years ago, although OPEC now happily shifts blame exclusively to market speculators that supposedly include among others the IEA (the global NGO oil watchdog based in Paris). When questioned during press briefing the Conference President told Daily News that two factors were critical. Speculations on the gasoline market in the U. S. and speculative wobbling in the petro-product markets. Unless these are brought under control there could be less chance of a price downdrift. Whether OPEC would re-discipline to production quota now set at 23. 5 mb/d, a traditional good act prevalent during past 5 years, is a matter needing closer watch. Seasoned analysts like Bill Edwards from neighbourhood of Houston, (Texas) world's oil capital, attending the meet are sceptical, if this one million mb/d cut alone would ever have a dramatic effect on oil price. Complex set of factors play a vital role they believe. |
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Produced by Lake House |
The OPEC decision for a 1 mb/d cut was actually taken on February 10 at
their Extraordinary Meeting in Algiers, but was put on hold till last
Wednesday's meet here for either a postponement or carry through due to
inner-OPEC debate and a focussed market watch. The decision and its actual
consequences affect world's non-oil poor.
