As oil prices shoot into uncharted territory, Organization of Petroleum Exporting Countries is wrestling with two powerful forces: need vs. greed.
Analysts expect the Organization of Petroleum Exporting Countries to take the easy way out and do nothing at all — at least for the time being — when the 13-nation cartel meets in Vienna on Wednesday.
Crude prices surged toward $104 today on the New York Mercantile Exchange.
Pressure has been mounting on Organization of Petroleum Exporting Countries to increase output and help ease the threat of record prices nudging the U.S. into recession and inflicting wider damage. Reflecting the worries of major industrial nations, Japan last week urged the group to open its taps, saying the soaring prices "are gradually damaging the global economy."
But Organization of Petroleum Exporting Countries members are reaping unprecedented profits, and analysts say it's unlikely that they will vote this week to raise production.
"I think that politically, Organization of Petroleum Exporting Countries should increase output. But I think what they will actually do is nothing," said John Hall, of John Hall Associates in London.
"They're controlling the market very carefully right now," he said. "They're getting greedy, and politically, it's a very bad move."
Oil shot up a dramatic 19 percent in February. Among the factors behind that: tensions in the Middle East, Turkey's incursion into northern Iraq and the slumping dollar, which has prompted speculators and other investors to shift cash to crude and other commodities.
Supply and demand, as always, are the wild cards.
Most industry experts say crude inventories are building, and key OPEC members contend the market is well-supplied.
What's less certain is demand. It typically slackens in the second quarter — and if the U.S. economy stumbles into recession, demand is likely to fall further as industrial production slows and factories adjust to weaker orders for consumer goods.
Surging oil prices are boosting gasoline prices at the pump, which is starting to dampen demand. The average price for a gallon of gas stood at $3.165 on today, according to AAA and the Oil Price Information Service, up nearly 70 cents from a year ago. Americans are responding by driving less — demand for gasoline has fallen for 5 straight weeks when compared to the same week a year ago, according to Energy Department figures.
"Organization of Petroleum Exporting Countries now finds itself in a difficult spot," said Stephen Schork, editor of The Schork Report, which keeps tabs on global energy markets and trends.
"The dollar is weak and getting weaker by the day, crude supplies continue to build, and the demand outlook is hardly sunny," Schork said. He thinks Organization of Petroleum Exporting Countries will be tempted to float a cut in output, "but in this price environment, that is a difficult sell."
Venezuela, one of OPEC's strongest price hawks, said it will lobby to keep current production levels unchanged. And Libya said OPEC probably "won't do anything" if oil holds around $100 a barrel.
"There are geopolitical factors that are pressuring prices," including the U.S.-led war in Iraq and the threat of new violence in Nigeria, said Venezuelan Oil Minister Rafael Ramirez. "It's not a supply problem."
Johannes Benigni, managing director of JBC Energy in Vienna, believes there is justification for a cut in output — but he doesn't think the cartel will intervene just yet.
A cut would push prices even higher, generating a storm of negative publicity for Organization of Petroleum Exporting Countries. And reducing output now would, as Benigni put it, "remove a bullet from their arsenal which could be used more effectively at a latter stage if prices begin to fall."
Benigni and others say the more likely trigger for Organization of Petroleum Exporting Countries action would be a drop in oil prices to $80 or $85 a barrel, which they think the cartel would be bound to defend.
"If oil retreats to these prices, then the group is likely to cut output," he said.
Including Iraq, which does not adhere to OPEC's production quotas, the cartel's total output is estimated at about 31.5 million barrels a day — roughly 40 percent of daily world demand, which is believed to be around 85.5 million barrels. Excluding Iraq, the formal OPEC output ceiling is around 30 million barrels a day.
Hall predicts that OPEC will maintain its current output, but to reassure jittery oil markets, will formally authorize the group's President Chakib Khelil to increase or decrease production in the coming weeks.
The cartel, he warned, may be trying to have it both ways.
"High oil prices do lead to recession," Hall said. "It takes time, but it gets there. And the problem is that it's self-perpetuating."
The 13 OPEC members are Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.
Analysts expect the Organization of Petroleum Exporting Countries to take the easy way out and do nothing at all — at least for the time being — when the 13-nation cartel meets in Vienna on Wednesday.
Crude prices surged toward $104 today on the New York Mercantile Exchange.
Pressure has been mounting on Organization of Petroleum Exporting Countries to increase output and help ease the threat of record prices nudging the U.S. into recession and inflicting wider damage. Reflecting the worries of major industrial nations, Japan last week urged the group to open its taps, saying the soaring prices "are gradually damaging the global economy."
But Organization of Petroleum Exporting Countries members are reaping unprecedented profits, and analysts say it's unlikely that they will vote this week to raise production.
"I think that politically, Organization of Petroleum Exporting Countries should increase output. But I think what they will actually do is nothing," said John Hall, of John Hall Associates in London.
"They're controlling the market very carefully right now," he said. "They're getting greedy, and politically, it's a very bad move."
Oil shot up a dramatic 19 percent in February. Among the factors behind that: tensions in the Middle East, Turkey's incursion into northern Iraq and the slumping dollar, which has prompted speculators and other investors to shift cash to crude and other commodities.
Supply and demand, as always, are the wild cards.
Most industry experts say crude inventories are building, and key OPEC members contend the market is well-supplied.
What's less certain is demand. It typically slackens in the second quarter — and if the U.S. economy stumbles into recession, demand is likely to fall further as industrial production slows and factories adjust to weaker orders for consumer goods.
Surging oil prices are boosting gasoline prices at the pump, which is starting to dampen demand. The average price for a gallon of gas stood at $3.165 on today, according to AAA and the Oil Price Information Service, up nearly 70 cents from a year ago. Americans are responding by driving less — demand for gasoline has fallen for 5 straight weeks when compared to the same week a year ago, according to Energy Department figures.
"Organization of Petroleum Exporting Countries now finds itself in a difficult spot," said Stephen Schork, editor of The Schork Report, which keeps tabs on global energy markets and trends.
"The dollar is weak and getting weaker by the day, crude supplies continue to build, and the demand outlook is hardly sunny," Schork said. He thinks Organization of Petroleum Exporting Countries will be tempted to float a cut in output, "but in this price environment, that is a difficult sell."
Venezuela, one of OPEC's strongest price hawks, said it will lobby to keep current production levels unchanged. And Libya said OPEC probably "won't do anything" if oil holds around $100 a barrel.
"There are geopolitical factors that are pressuring prices," including the U.S.-led war in Iraq and the threat of new violence in Nigeria, said Venezuelan Oil Minister Rafael Ramirez. "It's not a supply problem."
Johannes Benigni, managing director of JBC Energy in Vienna, believes there is justification for a cut in output — but he doesn't think the cartel will intervene just yet.
A cut would push prices even higher, generating a storm of negative publicity for Organization of Petroleum Exporting Countries. And reducing output now would, as Benigni put it, "remove a bullet from their arsenal which could be used more effectively at a latter stage if prices begin to fall."
Benigni and others say the more likely trigger for Organization of Petroleum Exporting Countries action would be a drop in oil prices to $80 or $85 a barrel, which they think the cartel would be bound to defend.
"If oil retreats to these prices, then the group is likely to cut output," he said.
Including Iraq, which does not adhere to OPEC's production quotas, the cartel's total output is estimated at about 31.5 million barrels a day — roughly 40 percent of daily world demand, which is believed to be around 85.5 million barrels. Excluding Iraq, the formal OPEC output ceiling is around 30 million barrels a day.
Hall predicts that OPEC will maintain its current output, but to reassure jittery oil markets, will formally authorize the group's President Chakib Khelil to increase or decrease production in the coming weeks.
The cartel, he warned, may be trying to have it both ways.
"High oil prices do lead to recession," Hall said. "It takes time, but it gets there. And the problem is that it's self-perpetuating."
The 13 OPEC members are Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.
Source: Associated Press
No comments:
Post a Comment