OPEC moves against rising oil prices

Apr 20, 2004 02:00 AM

The Organisation of Petroleum Exporting Countries (OPEC) has given its members the green light to over-shoot their officially assigned oil production quotas for now, in a bid to check rising prices of the commodity. The decision to set aside the group's production quota of 23.5 mm bpd, which was announced by OPEC President, Purnomo Yusgiantoro, meant Nigeria would still surpass its revenue projection for the 2004 fiscal year.
OPEC had last month, announced that it was cutting back its production ceiling by 1.0 mm bpd effective this month, to forestall a crash in prices during the second quarter of the year when oil demand would be lower. Yusgiantoro, however, said the group was ignoring its production ceiling "to stabilise the currently high oil price."

Crude oil prices continued on the upward trend, with the light sweet crude rising 0.5 % to $ 37.90 per barrel while the international market benchmark crude, the Brent also up by 0.5 % to $ 34.30 per barrel. This is still higher than the $ 25per barrel adopted by the National Assembly as the official selling price for Nigeria's oil in the 2004 budget.
The announcement excited officials of the Ministry of Petroleum Resources, who admitted that Nigeria had been struggling to scale back oil production to meet the country's quota of 1.93 mm bpd.

Nigeria, OPEC sixth biggest producer, had maintained an output level of 2.3 mm bpd since the beginning of this year, even when the country's quota was pegged at 2.018 mm bpd.
"Before now, we had a hectic time reviewing the commercially allowable quotas assigned to oil producer after Nigeria's quota was reviewed downwards," a ministry official told, adding that cash-strapped oil firms had been keen on making the best of the current high price regime to earn more revenue. Indeed, the Central Bank of Nigeria (CBN) said in its monthly economic report for the month of February 2004, that Nigeria's production stood at 2.58 mm bpd during the month in review.

OPEC's secretariat said its 10-members with quotas pumped an average 25.945 mm bpd in March, close to 1.5 mm bpd more than the 24.5 mm bpd ceiling which prevailed at the time, and nearly 2.5 mm bpd more than the new ceiling.
The OPEC president said current oil prices did not reflect any supply/demand imbalances. "OPEC is firm in its policy to allow leakage," Yusgiantoro said. "We allow the leakage [in order] to stabilize the currently high oil price," he added.

Analysts said low US fuel inventories, increasing unrest in the Middle East, home to two-thirds of global oil reserves, and booming demand in China to feed strong economic growth have kept oil prices soaring. The OPEC president said he might visit Russia, a non-OPEC country and the world's biggest producer, ahead of the group's next ministerial meeting in June this year in Beirut.
Russia recently suggested that OPEC and non-aligned producers should work together to bring down oil prices to protect global economic growth. Other analysts said that oil prices have been boosted in part because OPEC and other forecasting organisations such as the International Energy Association (IEA) have been underestimating world oil demand. The IEA has projected the need for OPEC crude this year, including Iraq, at 25.9 mm bpd, 270,000 bpd less than the group's own estimate.

Source: PetroEnergy Information Network
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