International Economy / Oil
Opec slashes discount for crude
By Javier Blas and Carola Hoyos in London
Published: June 12 2005 22:10 | Last updated: June 12 2005 22:10
opec oil pricesThe Organisation of the Petroleum Exporting Countries, the oil cartel, has raised the price of its own oil to the highest level in a year, while publicly promising to tackle the high cost of oil at this week's meeting in Vienna.
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Emboldened by strong demand and a high oil price that has yet to have a significant impact on global economic growth, several of Opec's biggest Middle Eastern producers last week further increased the prices they charge US and European traders and refiners for their oil.
The decision to increase the costs of actual crude oil from the Middle East - led by Saudi Arabia, the world's largest oil producer - has gone largely undetected because New York and London oil futures prices, the world's benchmarks, have remained almost the same. What has changed is the level of discount to international futures benchmark prices at which the Middle East countries sell their crude to the US and Europe.
Last week's adjustment marked a halving of that discount, now at a year's low. Compounding the impact of the increase in Europe is the fall in value of the euro against the dollar. For US and European consumers, the price increase has driven the cost of a barrel of Middle East oil from $37 a barrel last October to $50, even though the overall world futures oil price is little changed.
Last winter, consumers were insulated from the increase in futures prices by the record discounts Opec was offering. But last October's $14.20 discount for Dubai crude oil, the benchmark for Middle East countries, has shrunk to $2.
Alarm bells could be sounded, however, if the increased costs started to be reflected in a larger US trade deficit and slower US and European economic growth.
"We [the refiners] pay far more for the oil than last winter because of the discount's reduction and the fall of the euro," a senior executive from a European refiner said.
But some analysts and delegates at this week's Opec meeting said that the recent discount cut was justified because of the strong refining margins and rising fuel oil prices.
The cartel is also concerned about increased stockpiles of oil in the US, Europe and Asia, which threaten to reduce the power of the group to determine the timing and volume of its own oil in the market. |
