OPEC under pressure as $ 100/bbl oil looms

Nov 11, 2007 01:00 AM

Pressure is growing on OPEC to agree to raise output at its third heads of state summit in Riyadh as crude threatens to top $ 100/bbl.
A counter-seasonal decline in OECD oil inventories in the third quarter and the acceleration of stockdraws in the US in October are ringing alarm bells about the adequacy of supplies for the coming northern hemisphere winter. Geopolitical tensions and a weakening dollar helped push WTI futures to a record $ 96.24/bbl on 1 November, nearly double its low for this year of near $ 50/bbl in January.

OPEC president Mohammed al-Hamli acknowledges the organisation “has a responsibility” in the market -- namely “the secure and stable supply of oil at reasonable prices”. But he says production policy is not on the agenda of the Riyadh summit. Output will be discussed at the next ministerial meeting in Abu Dhabi on 5 December.
“We are of course concerned about the high level of prices,” al-Hamli says. He attributes soaring prices to “geopolitical events, high levels of speculation and bottlenecks in refining”.
Qatari oil minister Abdullah al-Attiyah says: “Please do not blame us. You have blamed us for the last 50 years.”

The IEA says OPEC’s move to raise output by 500,000 bpd from 1 November may be insufficient to halt the fall in inventories, and further rises may be needed.
“We are not asking OPEC for any special action, but we wish that key producers will take market signals seriously and decide accordingly,” says IEA executive director Nobuo Tanaka. “We think that if the winter is as cold as in a normal year, maybe stocks are getting very low.”

Al-Hamli says OPEC’s spare capacity stands at 3.5mn bpd and that ministers will discuss the latest market developments in Riyadh. Middle East Gulf producers are ready to increase production if needed. But customers need more products, not more crude, al-Attiyah says.
“We are producing all the oil that the market can absorb.” The focus on high prices and low stocks may deflect attention from the longer-term policy objectives that OPEC leaders normally address at infrequent heads of state summits. These include the preservation of oil’s share in global energy supply, the need for investment to increase production capacity, the reduction of poverty in developing economies, and protecting the environment.

Image jeopardy
Runaway prices threaten to jeopardise attempts by OPEC leaders to portray the group as a force for stability in the world economy. High prices may make it harder for OPEC to capitalise on political gains made through an expanding membership and September’s agreement to increase output.
The Riyadh summit will welcome Ecuador back into the fold, and marks Angola’s first appearance at OPEC head of state level. The timing of the price surge is particularly problematic for host Saudi Arabia, which led OPEC’s efforts to regain credibility by raising output from April this year.

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