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Opec washes its hands as oil prices run riot
London, Mar 26: Opec oil producers appear to have lost control of a surge in prices that ministers say is being driven by forces out of the cartel`s hands. Ministers from the Organisation of the Petroleum Exporting Countries meet next week in a bid to stem an upward price spiral when most were bracing for a seasonal slump on world crude markets.
London, Mar 26: Opec oil producers appear to have lost control of a surge in prices that ministers say is being driven by forces out of the cartel’s hands. Ministers from the Organisation of the Petroleum Exporting Countries meet next week in a bid to stem an upward price spiral when most were bracing for a seasonal slump on world crude markets.
The oil cartel has long publicly fretted that a drop in global fuel demand after the northern hemisphere winter and a recovery in Iraq to pre-war crude export volumes would bring oil’s five-year price bonanza to a screeching halt. Instead US crude last week hit a 13-year closing high on the New York Mercantile Exchange of over $38 a barrel, raising the alarm on energy costs for importing nations.
Opec’s mid-February decision to slice production quotas by 4% from April 1, a second surprise cut in six months, now looks one step too far in the group’s campaign of supply restrictions that officially is designed to keep prices in a $22-$28 range.
Ministers must decide at their March 31 meeting in Vienna whether to defer or cancel the April cut, and risk a big fall in prices, or go ahead with it and upset consuming nations worried about the economic impact of energy inflation.
“By not cutting, it runs the risk that prices fall precipitously if stocks continue to build and gasoline is unsupportive,” said William Buchanan of Standard Bank in London. Opec members blame external forces, rather than any shortage of its crude, for lifting benchmark US crude futures to an average of more than $35 a barrel so far this year, well above ’03’s $31 average, itself the highest in two decades.
China ’s rampant fuel demand growth, geopolitical security fears and low US gasoline stocks of a new green fuel have turned oil futures into a buying magnet for big-money fund managers.
The speculative buying has fuelled Opec’s nagging fear that a sudden exodus by those funds could send prices into free-fall. A recent survey of analysts estimated speculators have injected a premium of about $8 into US crude prices.
“I am convinced there are two reasons for such a high price who are convinced there is going to be a lack of crude,” Saudi oil minister Ali al-Naimi said this week. The big question now is whether Opec, and Saudi Arabia in particular, think prices are too high for the group’s own good.
The Bush administration is showing growing unease about the political fallout of high prices at the pump in an election year. But the post-9/11 chill in relations between Washington and Saudi suggest Riyadh is no longer in the business of reining in Opec’s price hawks.
Bureau Report
Ministers must decide at their March 31 meeting in Vienna whether to defer or cancel the April cut, and risk a big fall in prices, or go ahead with it and upset consuming nations worried about the economic impact of energy inflation.
“By not cutting, it runs the risk that prices fall precipitously if stocks continue to build and gasoline is unsupportive,” said William Buchanan of Standard Bank in London. Opec members blame external forces, rather than any shortage of its crude, for lifting benchmark US crude futures to an average of more than $35 a barrel so far this year, well above ’03’s $31 average, itself the highest in two decades.
China ’s rampant fuel demand growth, geopolitical security fears and low US gasoline stocks of a new green fuel have turned oil futures into a buying magnet for big-money fund managers.
The speculative buying has fuelled Opec’s nagging fear that a sudden exodus by those funds could send prices into free-fall. A recent survey of analysts estimated speculators have injected a premium of about $8 into US crude prices.
“I am convinced there are two reasons for such a high price who are convinced there is going to be a lack of crude,” Saudi oil minister Ali al-Naimi said this week. The big question now is whether Opec, and Saudi Arabia in particular, think prices are too high for the group’s own good.
The Bush administration is showing growing unease about the political fallout of high prices at the pump in an election year. But the post-9/11 chill in relations between Washington and Saudi suggest Riyadh is no longer in the business of reining in Opec’s price hawks.
Bureau Report