If oil price falls, there won't be investments in new reserves, reserves depleted point to surge in oil prices ahead.
Once oil prices surge, the fastest response will be ethanol. The stone age didn't end by lack of stones, The oil age will end not by lack of oil.
Opec
Published: December 6 2004 13:26 | Last updated: December 6 2004 13:26
In most circumstances the Organisation of the Petroleum Exporting Countries would be expected to react to a swift 25 per cent fall in crude prices. But how do you justify attempts to halt the slide when, at $34.53 a barrel, Opec’s reference basket price is still well above its official $22-$28 target range?
One solution would be to admit the price band is no longer realistic and raise it at this Friday’s Opec meeting. With the dollar falling and investment in new production capacity needed, the desire for a higher target price is clear. Purnomo Yusgiantoro, Opec’s president, recently suggested a fair price for the basket was between $28-$32.
Raising the target range now, however, would be highly unpopular with consuming nations. New York crude futures have dropped by $12 since late October as fears over winter supplies have subsided. But prices remain volatile and the winter is not yet over. Placing a higher floor beneath the market could send prices back up.
Saudi Arabia, Opec’s lynchpin, has been keen not to antagonise oil importers. It is unlikely to sanction either a higher formal target price or quota cuts. Kuwait and Qatar, two dovish members aligned with Saudi Arabia, have called for an end to overproduction, currently up to 1.5m barrels per day over existing quotas. Comments on the need for greater production discipline are the cartel’s most probable response. Prices have fallen hard, but, ironically, not hard enough to force Opec to adopt a more realistic price target. |
