Can (not Will) OPEC Raise Production? - PetroDispatch, March 7
This question has been the overwhelming issue keeping crude prices at the $30 level for much of this winter. All the reasons crude should have come down are there, but the price doesn't seem to pay any attention. The warm winter, both in the U.S. and Europe worked it way with natural gas prices. The compliance with the to oil cuts was estimated at 67% OPEC February, levels last seen at $10 crude.
An old saying says that the opposing forces of greed and fear drive investors. OPEC might be enjoying the high prices but it is fear really driving this rally. The fear that the shut-in production, long claimed by each OPEC country to be there (and was the basis for their "quota") isn't really there. Until producers can show the world the extra oil is flowing, the traders will not believe them.
Today, I read a report warning that Venezuela may not be able to increase its output. Venezuela is the world's third largest oil exporter. Now, because of low levels of investment and reduced capacity, oil industry observers are warning of continues low production.
The warning came as growing unrest among oil workers threatens to disrupt the country's oil production. A strike by Venezuela's biggest oil worker's union on Friday was abandoned after the nationalist government of president Hugo Ch vez refused to negotiate with the union over collective wage agreements, and demanded the union elect new leaders.
But the problem is deeper than a threat of a strike. Corrupting and mismanagement has wounded the industry in a way that will take a long time to recover from. "The damage that was done by allowing capacity to drop during 1999 is irreversible in the short term," said Ram¢n Espinasa, until recently chief economist at PDVSA and now a consultant with the Inter-American Development Bank in Washington. Investment was kept to a minimum in the first half of 1999 because oil prices were only beginning to climb from historic lows and revenue was low. Growing revenues in the second half of the year was siphoned off by the government, Mr. Espinasa said.
Everyone expects OPEC to cautiously increase production by about one million barrels per day in April to test market reaction before setting new ceilings for the whole year. "This volume (one million bpd) seems reasonable to start" the period from April 1, a senior oil official from a member of the Organization of Oil Exporting Countries said Monday.
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The oil-producing countries claimed to have slashed 2.1 million barrels of oil a day from world production. But was that production already gone to start with? |
