With crude-oil prices up by a third from a year ago, OPEC may seem content to rubber-stamp policy statements and count its growing revenue.
With crude-oil prices up by a third from a year ago, OPEC may seem
content to rubber-stamp policy statements and count its growing revenue.
Last week's decision, however, by the Organization of Petroleum Exporting
Countries marked a significant shift, although at first glance it seemed like
the consensus on holding oil output steady was just an affirmation of the
status quo.
In its post-meeting communique, OPEC said it "decided to leave current
production levels unchanged" and, in direct contrast to the March meeting,
didn't mention the need for compliance with widely flouted national output
levels set up in December 2008.
Despite agreeing to cut output by 4.2 million barrels a day back then, OPEC's
supply has been consistently about 2 million barrels a day above those levels
set two years ago. Saudi Arabia and its Gulf allies, which hold the lion's
share of OPEC spare output capacity, hew closer to those notional production
figures than others, like price hawks Libya, Algeria, Iran and Venezuela, who
call $100 a barrel oil a fair price.
Total OPEC output of around 29.3 million barrels a day is keeping oil prices
this year near $78 a barrel, in the middle of the "ideal" range
advocated by the Saudis, the world's largest oil exporter.
At talks in
Vienna
last
week, OPEC's de facto leader
Saudi
Arabia
's Oil Minister Ali Naimi
called current low compliance "okay." The Saudis may be signalling a
coming increase in their output, if prices climb too high too fast.
The communique, while expressing "considerable concern" about the
scope of global economic recovery, appears tilted toward assuring adequate
supply at "reasonable and fair prices." In his opening address to
conference, OPEC President Wilson Pastor-Morris of
Ecuador
,
said, "Compliance is a word that has been on many people's lips"
since December 2008, and said it would feature in the talks. "But we shall
not lose sight of the bigger picture," which is that OPEC and non-OPEC
producers both "stand to gain from market stability."
The Saudis will act to tamp down prices if they make a "sustained push
into the upper $80s," said Greg Priddy, global energy analyst at the
Eurasia Group in
Washington
. "I
think the absence of any language about compliance in the communique is rather
telling in that regard."
Priddy said he believes "the Saudis are still committed to reining in
price increases in the near-term, both to avoid derailing the economic recovery
... and to limit the economic benefits to
Iran
. The
weakening in the U.S. dollar -- the pricing basis for global oil sales --
"probably puts the trigger price" for increased Saudi output "a
bit higher" than it would have been, he said.
"The most likely case is still that the Saudis keep their powder dry for a
couple of months and then start to ratchet up in response to demand growth in
2011, but movement in the currency markets is a wildcard and could prompt
action before then," he said.
OPEC and the Saudis have in the past shown extreme caution about ratcheting up
output in response to prices. After its March 17 meeting, OPEC watched prices,
then near current levels near $83 a barrel, climb to $87 in early April. As
OPEC watched from the sidelines as prices jumped 16% from the favored level,
economic uncertainty slashed prices to $68 a barrel in mid-May.
The U.S. Energy Information Administration warned that oil prices could climb
"significantly higher" than its $85 a barrel forecast for the 2011
fourth quarter unless OPEC boosts output to near 30 million barrels a day. A
growing number of analysts expect higher demand to push prices up, at least
temporarily, to $100 a barrel by this time next year.
OPEC output policy looks to become a major market factor in 2011, when Iran
takes over the group's presidency for the first time since the mid-1970s.
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