OPEC to meet Jan. 30 despite request from Iraq

Jan 12, 2005 01:00 AM

OPEC oil ministers will meet on January 30 as scheduled despite a request from Iraq to move the date of the meeting to avoid a clash with the Iraqi elections, an OPEC spokesman said.
"The meeting will go ahead as scheduled. All the ministers have been consulted and a decision has been reached," the official said.

Ministers from the Organisation of the Petroleum Exporting Countries are expected to consider production cuts at the January 30 meeting to prevent stocks building too fast and pulling down prices. OPEC earlier agreed to cut back 1 mm bpd of excess supply over formal quota limits from January 1 in an effort to stem a slide in world oil prices.
World oil demand is growing at its fastest pace in 16 years. US, European and Japanese economies are finally growing again and China is sucking in oil -- imports are 20 % higher than a year ago -- to power its manufacturing and to make gas for its booming car market. The world consumed 79 mm bpd of oil in the second quarter. Forecasts call for that to rise to 82.5 mm in the fourth quarter.

Stocks of oil are low by historic standards, removing a cushion between demand and supply. The unusually cold winter in the Northern Hemisphere caught oil companies shorthanded, forcing them to run down stocks. But oil companies are keeping less oil on hand than in the past to lower their cost of business. OPEC has kept its stocks low as a matter of policy.
Unrest has disrupted oil production in the Middle East, Nigeria and Venezuela. New production investment has been low in the Persian Gulf and Caspian Sea. Mature US and North Sea oil fields are producing less and new finds have dropped to 6.8 bn barrels annually in 2001-2003 from 11.4 bn barrels per year in the previous five years. US refineries are running at near-full capacity, slowing gas deliveries to consumers. Summer driving will only make things worse.

US gas prices rose more than 50 cents per gallon during the first five months of 2004, but higher crude accounted for only about half of that. Severe winter weather delayed US refiners from making their annual switch to summer products. Even if they try to play catch-up, tankers from the Gulf take six weeks to reach the US so new supplies wouldn't reach consumers until late summer. And because different US regions require different gas formulations, a shortage in one can't be met with shipments from another.
Oil prices have jumped 30 % this year thanks to the supply-and-demand problems, the weaker US dollar and speculation. A 10 % drop in the dollar against currencies of other oil-consuming countries means a 7.5 % rise in the dollar price of oil. OPEC officials also blame hedge fund bets that prices will go higher for up to 20 % of $ 40 oil. But even at $ 42, a barrel of oil is cheaper than it was in 1980, when it cost $ 81 in today's money. (In 1864, oil hit a giddy $ 8 per barrel -- $ 92 in 2004 dollars.)

High oil prices push up inflation through higher energy and transportation costs; they can push up interest rates and trim economicgrowth too. A $ 1 gain in crude oil prices adds $ 280 mm per year to US airlines' fuel bills. If price rises are steep enough or last long enough, they can trigger recessions, as happened in 1973-1974, when OPEC tripled oil prices overnight, and in the 1980s, when oil prices stayed above today's prices in real terms for seven years.
OPEC's 11-member states pump 39 % of the world's oil production and half of oil exports. The 44-year old cartel tries to manage prices by regulating output, though quotas rarely reflect true OPEC output. But while OPEC opted to raise output at its June 3 meeting in Beirut, most members are producing at full capacity already. OPEC also has internal policy divisions between pro-US members such as Saudi Arabia and Kuwait and countries less favourably disposed to the Bush administration such as Iran and Venezuela.

Although the US gets only 10 % of its oil from the Persian Gulf, the Middle East remains the world's largest oil producing region. Recent violence in Saudi Arabia, including a deadly attack by Islamic militants in Khobar, and a fear that al Qaeda-linked forces are trying to provoke civil war in the kingdom have again raised fears about supply interruptions. Continuing unrest in Iraq will delay the return of its oil to world markets in any significant volume.
The world's oil infrastructure has many points open to terrorist attack, but it would take simultaneous strikes to cause a significant disruption. Oil wells, pipelines and tankers are the least of the worries. Ports are a bigger potential chokepoint because most oil producing nations have only one or two terminals. But with US refineries already at full capacity -- no new ones have been built for years because of environmental concerns and NIMBYism (not-in-my-backyard) -- taking out one would send US fuel prices soaring.

Although oil -- and natural-gas -- prices have risen sharply, they will likely have only mild effects on overall economic activity, making real US gross domestic product only about 0.9 % lower than it would otherwise be. Not enough to derail the recovery. Businesses also have more experience with energy price shocks; they understand how the shocks affect them and how other segments of the economy will respond. But many of the factors behind the recent surge in prices are likely to persist.
Crude has fallen nearly $ 10, or 17 %, from record highs hit in late October but prices have rallied in recent days, partly on the expectation of an OPEC cut. US crude was 34 cents up at $ 46.02 a barrel. Ministers from Iran and Qatar have said that oil markets are oversupplied despite the group's deal to cut back. Oil prices rose 34 % in 2004, driven up by rising consumption in China, India and the United States. OPEC pumped at its highest level in 25 years to meet the demand.

Source: Forbes.com
Alexander's Commentary

Change of face - change of phase

In the period of July 20 till August 3, 2015, Alexander will be out of the office and the site will not or only irreg

read more ...
« February 2020 »
1 2
3 4 5 6 7 8 9
10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29

Register to announce Your Event

View All Events