Economy & Trade, Global, Global Geopolitics, Headlines

OIL: No Ceiling for Prices

Humberto Márquez

CARACAS, Jun 24 2005 (IPS) - International oil prices broke through the barrier of 60 dollars a barrel for the second day in a row Friday, affecting major consumer markets in Asia along with small ones in Central America.

In New York, West Texas Intermediate (WTI), the U.S. benchmark, reached the 60-dollar mark Friday before closing at 59.50 dollars a barrel.

North Sea Brent, the European benchmark, rose to 58.26 dollars a barrel in London, to close at 58.12 dollars.

Over the past week, international prices climbed three dollars a barrel, averaging 58.85 dollars a barrel for WTI, 57.62 dollars for Brent, and 52.45 dollars for the Organisation of Petroleum Exporting Countries (OPEC) basket, the Venezuelan Energy Ministry reported.

"Speculative activity on the futures market, reflecting concern over supplies of refined products in the second half of the year, mainly in the United States, continued to pressure prices," said the weekly report by the Energy Ministry of Venezuela, the only Latin American member of OPEC.

Venezuelan Foreign Minister Alí Rodríguez, a former OPEC secretary-general, noted that while the world consumes just over 80 million barrels a day of crude, there are days when as much as 200 million barrels of oil is traded "on paper" on the futures market.

The traders seem to have taken control, according to the Chicago-based firm Alaron Trading. And although prices could drop a few dollars over the next few days, they could also get to the point where 100 dollars would not seem impossible, in the coming northern hemisphere winter, said Veronica Smart, an analyst at the Energy Information Centre, a consulting company in Britain.

However, should any disruptions to refineries occur, anywhere in the world, prices could "go all the way up to 80 dollars," said Richard Slape of Seymour Pierce, a financial services firm in London.

Global demand for crude will grow from the current 83 million barrels a day to around 86 million in the last quarter of the year, according to OPEC, and even higher according to the International Energy Agency, the energy forum for industrialised countries.

Supply concerns were heightened by China’s decision to create a strategic reserve of 100 million barrels over the next three years – as reported by the China Daily – similar to the U.S. reserves of 327 million barrels, whose fluctuations prompt traders to buy or sell.

OPEC, for its part, recently offered a small rise in output, of 500,000 barrels a day, on top of its current production of 30 million barrels a day. However, the increase failed to curb prices.

The organisation, whose production represents 36 percent of global demand, is made up of Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. It produces close to capacity, and the additional volumes are mainly heavy, acidic crude.

Refineries, which prefer light, sweet oil with low sulphur content, constitute a bottleneck for the delivery of fuel, while in the world’s biggest market, the United States, demand for gasoline is growing, and is three percent up from last year, while demand for distillates is up six percent.

"The problems have to do with a deficit in refining capacity, because in the United States – which demands 9.5 million barrels a day of gasoline, nearly one out of every two litres produced worldwide – no new refinery has been built in over 25 years. Prices will remain high," said Venezuelan Energy Minister Rafael Ramírez.

That outlook has not only driven up prices in the leading oil consumer markets but affected stock markets in Asia, for example.

Stocks in Tokyo slid 0.34 percent Friday, while they dropped 0.41 percent in Manila, 0.42 percent in Bangkok, 0.52 percent in Taipei, 0.47 percent in Kuala Lumpur, and 0.15 percent in Jakarta, the capital of oil-producing Indonesia.

In the smallest markets, like the small consumers in Latin America, the impact on day-to-day life has been heavy. In Panama, for example, the price of gasoline rose six cents a gallon Friday, to between 2.23 and 2.30 dollars, similar to prices in the United States.

Public transport drivers in Panama are preparing for the possibility that the government may scrap their temporary tax exemption of 20 cents a gallon.

In neighbouring Costa Rica, one of the measures included in a plan presented by Minister of Environment and Energy Carlos Rodríguez would order public employees to arrive an hour earlier at their jobs, at 7:00 instead of 8:00 AM, to ease traffic with the aim of saving on fuel.

In Nicaragua, economist Roger Cerda pointed out that while the exports of his impoverished country totalled 756 million dollars in 2004, oil imports amounted to 389 million dollars. And at the current rate at which oil prices are climbing, the bill will soon rise to 500 million dollars.

In Chile, fuel prices are indexed to those of WTI, and the rise in the cost of airplane fuel has already affected the air force, to the tune of around five million dollars.

Civil airlines have also felt the impact: British Airways announced this week that it would raise its fuel surcharge, to absorb the high oil prices.

Nevertheless, oil industry experts like Víctor Poleo in Venezuela point out that in 1981, after war broke out between Iran and Iraq, the oil that the United States purchased from the Arab world cost 35.24 dollars a barrel, which would be equivalent to more than 75 dollars today, adjusting for the depreciation of the dollar and inflation.