Economy & Trade, Global, Global Geopolitics, Headlines, Latin America & the Caribbean

PETROLEUM: OPEC Decisions and Tribulations Push Up Prices

Humberto Márquez

CARACAS, Oct 3 2003 (IPS) - Prices for crude oil saw a six-percent increase this week, after the Organisation of Petroleum Exporting Countries (OPEC) sent signals that it will shore up prices, potentially through new cuts in production.

West Texas Intermediate, a U.S. benchmark crude, sold Friday on the New York exchange at 29.90 dollars per 159-litre barrel, and Brent North Sea was traded in London at 28.12 dollars a barrel.

OPEC’s seven reference crudes fetched an average price of 27.07 this week, compared to 25.13 dollars the last week in September, driven by "expectations of reduced global petroleum supplies in the last months," according to the Energy Ministry of Venezuela, an OPEC member.

The prices are 10 to 11 percent higher than they were on Sep. 24, when the OPEC ministerial conference in Vienna made the surprise decision to cut its members’ combined output by 900,000 barrels a day beginning Nov. 1, reducing total daily production from 25.4 million to 24.5 million barrels.

OPEC produces around a third of the 78 million barrels of oil that the world consumes each day, and its members’ exports represent half of international trade in crude.

The organisation comprises Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela, and for the past four years has defended a policy aimed at maintaining oil prices within a band of 22 and 28 dollars a barrel.

The price increase comes right after President Hugo Chávez of Venezuela – OPEC’s third leading exporter and one of the main suppliers to the United States – suggested that "the time has come to adjust the price band upwards, to between 25 and 32 dollars" per barrel.

Chávez’s statement had an immediate impact, pushing prices up 19 cents on the dollar per barrel, but oil industry analysts say OPEC is not considering modifying the ideal price range when its ministers meet again on Dec. 4.

Venezuela’s Energy Minister Rafael Ramírez told IPS that the "potential modification of the band is one of the issues being considered by the OPEC long-term strategy committee," made up of assistant energy ministers. The team’s initial report will be presented at the December meeting.

In addition, the committee is reviewing the quota system (through which OPEC divides its total output among its members), the production capacity, reserves and types of crude produced, and the tax systems of each member, he said.

These decisions, including that regarding the price band, "are part of all of these long-term issues that are on the agenda for the next OPEC Summit (of heads of state and government), to take place in 2005," said Ramírez.

But the market also read the Venezuelan statement as a sign of the government’s hunger for oil revenues to compensate for the decline suffered by its petroleum industry, which has yet to recover from the two-month strike last December and January, led by the anti-Chávez movement.

According to government reports, Venezuela produces 3.2 million barrels of crude a day, but former managers of the state-run Petróleos de Venezuela (PDVSA), fired for being at the forefront of the strike, say the country pumps just 2.6 million barrels daily.

Attempts to determine Venezuela’s true output tends to degenerate into a battle of numbers.

Because Caracas also supports production cuts as a means to shore up prices, the market interpretation has been that potentially less Venezuelan crude will be flowing in the coming months.

Oil buyers were also worried about a Nigerian labour union announcement of a general strike to protest the oil price hikes on the domestic market. But that concern faded Friday when the union suspended the call to strike.

Nigeria produces more than two million barrels of crude a day, and throughout the year the extraction and export of its petroleum – among the world’s lightest and most valued – has suffered the effects of ethnic and labour conflict.

OPEC’s Arab members appear to be satisfied with the current oil market situation. "If the prices continue at the same level (at the upper reaches of the price band), perhaps we will continue at the same production level At the moment I do not see any reason to change," said Kuwait’s petroleum minister, Ahmad al-Sabah.

But his Indonesian counterpart, Purnomo Yusgiantoro, who will head OPEC beginning in January, says, "There is a possibility that the production quota will be cut at the next session, but that depends on non-OPEC" oil producers.

OPEC has called on non-member petroleum exports – Angola, Egypt, Mexico, Norway, Oman, Syria and Russia – to join the cartel in its policy of containing production in order to keep prices up.

In 2002 the non-OPEC countries heeded production limits in order to keep prices from falling below 17 dollars a barrel.

President Vladimir Putin said last week that Russia, the world’s second oil exporter after Saudi Arabia, is willing to continue cooperating with the policy, but other major producers, like Norway and Mexico, are more reticent.

Mexico remains steadfast in its plan to export 1.88 million barrels a day – mostly to the United States – next year, maintaining this year’s levels.

Norway, which produces around three million barrels a day, is a member of the Organisation for Economic Cooperation and Development (OECD), a bloc of industrialised countries, and is hesitant to agree to cut back output, although its officials say they will be attentive to the steps that OPEC takes.

A key factor, agree representatives of all oil producing countries, is the return to the market of Iraq, which prior to the U.S.-led invasion pumped 2.5 million barrels of crude a day, and aims to recover that level of output sometime 2004.