COMMODITIES: Week Ends with Good News for OPEC

By Humberto Márquez Reprint | | Print |

Humberto Marquez

CARACAS, Sep 7 1996 (IPS) - A week which opened with US attacks on Iraq – a member of the Organisation of Petroleum Exporting Countries (OPEC) – ended with good news for the other 10 members.

The price of the basket of seven OPEC crudes ended the week at 21.3 dollars per barrel, following four days in a row at a above 21 dollars, making a September average of 21.1 dollars, according to Venezuela’s Energy Ministry.

In July 1990, OPEC had fixed a target price of 21 dollars per barrel in order to fulfill the development plans of the 13 member nations of the time – a price only previously reached, and sometimes surpassed, during the 1990-91 Gulf War.

The prices were far lower than this for years, and OPEC could only maintain them by restricting the supply – arranged through a quota system for its members – with a collective ceiling of 24.5 million barrels per day, or 35 percent of world production.

The OPEC basket of crudes was sold at 15.5 dollars per barrel in 1994 and at 16.9 in 1995, but this year, while comsumption grew by more than two percent in relation to 1995, the price kept increasing and remained unusually high during the northern summer, the period of lowest demand in the industrialised nations.

The average price for OPEC so far in 1996 is 19.1 dollars per barrel, more than two dollars above last year’s figure, which means the 10 members will receive between 18 and 20 billion dollars more this year than in 1995.

The other good news for the OPEC members came from the International Energy Agency, which is made up of the industrialised consumer nations, who Friday presented a report predicting greater demand for OPEC crudes in the rest of 1996.

According to the Agency, the demand from OPEC will increase by 300,000 barrels per day during this quarter, compared with the initial calculations, to reach 24.2 million barrels per day.

In the last quarter, demand will outstrip forecasts by 400,000 barrels per day, and will reach 25.5 million barrels per day, said the Agency.

This revision is due to the suspension of the “oil for food” agreement, which planned to allow Iraq back onto the market in late August/September, with 700,000 barrels per day – about the same amount as the Netherlands consume in the same time.

The UN Security Council banned its petrol exports since it invaded Kuwait in 1990, but in June said that in the second half of 1996, Baghdad could export crude to the value of two billion dollars in order to buy food and medicines.

But the Iraqi army intervention in the conflict in Kurdistan, a week ago, and the US counter-attack with 44 missiles fired into Iraqi positions, was accompanied by the indefinite suspension of the “oil for food” agreement.

The absence of this contribution to the market occurred just when the accumulated reserves in the industrialised nations were at an all-time low, hence the predicitons of increased demand to match economic growth in these countries.

For example, in the United States, with accumulated reserves of around 300 million barrels of crude on top of the 100 million barrels of gasoline and other petroleum products, the Department of Energy registered an imbalance of 21 million barrels compared with inventories from September 1995.

The American Petroleum Institute (API) reported falls of 3.7 million barrels in gasoline stocks last week and 3.2 million barrels of fuel oil.

The International Energy Agency did not change its oil consumption calculations for 1996, and they remained at 71.8 million barrels per day, though they predicted increases of 2.5 percent for 1997, up to 73.6 million barrels per day.

This outlook suggests the prices will continue to rise beyond the sharp rises provoked by the missiles fired on Iraq at the opening of markets on Tuesday and Wednesday.

The OPEC associates of this Arab nation are thus receiving the additional dividend of conquering markets that are currently prevented from buying Iraqi oil.

In June, the OPEC agreed to increase the production ceiling production from 24.5 to 25 million barrels per day, precisely to cover the hole left by Iraqi exports, but the International Energy Agency said that while they are awaiting the nation’s return to the market they are extracting 2.8 million barrels per day.

For members with abundant reserves and closed production capacity – like the Gulf producers and Venezuela – the perspective of greater demand, stable prices and the possibility of extracting more crude are all extremely good news.