OIL: Prices Begin to Slip as OPEC Boosts Output

By Humberto Márquez Reprint | | Print |

Humberto Márquez

CARACAS, Jan 13 2003 (IPS) - Petroleum prices began to ease Monday after the Organisation of Petroleum Exporting Countries (OPEC) announced its decision to increase its production quota from 23 million to 24.5 million barrels of crude daily for the duration of the political and economic crisis in member country Venezuela.

North Sea Brent, a benchmark crude, saw fluctuations on the London exchange of 29.20 to 29.30 dollars per 159-litre barrel, 37 to 47 cents less than what it fetched last week, which on some days surpassed the 30-dollar-per-barrel mark.

Meanwhile, the U.S.-produced light crude sold Monday on the New York market for 31.45 dollars a barrel, after passing the 33-dollar threshold, and closing Friday – already on the way down – at 31.68 dollars.

The OPEC basket of seven crudes last week fetched an average of 29.92 dollars per barrel.

The prices on a global market that demands 76 million barrels a day rose towards the end of 2002 as plans seemed to be advancing in Washington to attack Iraq, which produces 2.3 million barrels of crude daily.

Prices jumped again after the general strike erupted Dec 2 in Venezuela, which extracts 2.8 million barrels a day.

The OPEC ministers decided in an emergency meeting Sunday at the cartel’s Vienna headquarters to go beyond the production increase slated in its pricing table, which calls for boosting output by only 500,000 barrels a day if the basket of seven crudes remains above 28 dollars a barrel.

This time they agreed to put an additional 1.5 million barrels (a 6.5 percent increase) on the market daily, beginning Feb 1, to compensate for the lack of petroleum coming from Venezuela, where the general strike continues by groups opposed to President Hugo Chávez, practically paralysing that country’s oil industry.

Before the strike, Venezuela was OPEC’s third-biggest oil producer and a key supplier of petroleum for the United States.

The 11 OPEC members are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.

OPEC president Abdullah al-Attiyah, Qatar’s oil minister, said the organisation hopes the decision will lead to a reasonable price for consumers and will send a "strong message" to the international market, preventing potential panic.

Saudi Arabia, OPEC’s biggest oil producer, has the capacity to pump 10.5 million barrels a day within two weeks, said that country’s oil minister, Ali al Naimi. Currently, Saudi Arabia can produce 7.5 million barrels daily.

Sources in Vienna said the decision came after five hours of intense debate among the OPEC ministers, marked by Venezuela’s concern that its production quota (2.5 million barrels daily) is being cut, and worries in Algeria and Indonesia, which are at nearly full production capacity.

Attiyah clarified that the new increase in output would be maintained until Venezuela re-establishes its position as a major exporter, while UAE minister Oabid al-Nasseri noted that OPEC would review the situation at the already-scheduled meeting on Mar 11, if not sooner.

The cartel’s secretary-general, Venezuela’s Alvaro Silva, stressed that "the main purpose of Sunday’s decision is to push the prices towards the band set by OPEC." The objective of the price band is to keep prices within the range of 22 to 28 dollars per barrel, a level the organisation says benefits oil consumers and producers alike.

Alí Rodríguez, president of the state-run oil company, Petróleos de Venezuela S.A., confirmed in Vienna the government’s decision to produce more than two million barrels of oil daily, depending on employees loyal to president Chávez being able to gain access to the industry installations that have been closed down by the strike.

Contradicting figures come from the Chávez administration and from the opposition leading the strike as to the current level of Venezuela’s petroleum production.

Strike leaders say that just 150,000 to 400,000 barrels of crude are produced daily, while the government claims output stands at more than 600,000 barrels, with exports averaging 300,000 barrels a day.

The OPEC decision to place more petroleum on the market beginning in February will not be enough to compensate for Venezuela’s absence, meaning prices will be slow to register any significant reduction, says consultant Adam Sieminski, of the Deutsche Bank in London.

Meanwhile, buyers in the United States are tallying transport costs, noting the differences between nearby Venezuela and the distant Middle East.

The markets remain alert also to the spectre of war hanging over Baghdad. A report published Monday by the USA Today newspaper, attributed to the U.S. Defence Department, states that Washington would need until at least the end of February to prepare for a war against Iraq.