OPEC & the price of oil. Some interesting quotes from todays' Bloomberg Energy
"The overall feeling is that the increase in quotas may be only slightly more than what they are cheating by,' said Nauman Barakat, vice president of global energy trading at ABN Amro Inc. in New York. ``An official increase of around 1.5 million barrels a day' would send prices higher, he said.
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Prices having dipped in recent days, producers like Iran and Libya with little reason to placate Washington, now have fresh ammunition to argue for a cautious approach that would add only slim volumes to member country crude oil production quotas.
``There are serious doubts now about falling prices, and there are questions about the merit of a production rise,' Iran's Deputy Oil Minister Hossein Kazempour Ardebili told Reuters this week.
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Comment from Tom Bentz at Paribas Futures in New York:
``The market now expects OPEC to raise output 1 to 2 million barrels a day on top of the amount they're already producing. ``But prices have fallen so far, where is the incentive to raise output? Do they really need to raise it 1 1/2 million barrels a day?
``The Iranians are now saying there may not be a need for an increase. I'm leaning toward them raising only 500,000 barrels a day above the 1.4 million they're already cheating, and then meeting again in June to raise it again.
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Dresdner Kleinwort Benson's Varzi:
``The lower prices go, the more cautious OPEC will be. But it's wrong for OPEC to look at short-term oil prices, because it will not give them the information they need to plan for the next six to nine months. ``OPEC is mesmerised by short-term oil prices. OPEC keeps looking at changes in short-term oil prices, and the market keeps looking at OPEC, and they keep going round and round. And this is very dangerous.
``My concern is that as a consequence of this, OPEC may raise output by too little. OPEC should not be fooled by lower oil prices -- they must focus on the fundamentals, which clearly show world oil inventories are at record lows. ``OPEC has to include cheating in any increase in oil output. Whatever agreement they come up with, they must incorporate current levels of production, however it is calculated.'
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Comments by Frederic Lasserre, an analyst at Societe Generale in Paris:
``I'm quite sure the market will be turning to OPEC again in May, because it will still need more oil. We expect an increase of 1.2 million barrels a day, and the market is expecting the Monday meeting to increase crude production by between 1.2 and 1.5 million barrels, which is quite clearly not enough. ``Stocks are still very low. An increase of 1.2 million barrels could start building them, but only very slowly. ``Given that scenario, OPEC will have to increase again in June as the U.S. driving season gets underway, and probably again in September, during the Caracas meeting.
``What they're doing is creating a soft landing for the oil price, targeting a three-step increase. It's not unreasonable -- it took three agreements to bring the price up, so why not the same thing on the way back down. They're fining tuning. ``Plus you have to remember that there is minimal spare capacity. Everyone talks about Saudi Arabia having 3 million barrels a day they can turn on quickly. That is true, but they can't just do it next week. You need more than a week to do that You can't bet on that type of increase, you have to be more realistic. And even if they do increase production, it takes another week for the crude to get to market.
``I don't thing the market will rise next week, if we get an increase of 1.2 to 1.5 million barrels. This week's retracement is linked to the fact that hedge funds cut their positions because there isn't that much upside for them right now. For them, the risks are now on the downside.
``After the OPEC meeting, attention will probably turn again to the U.S. Strategic Petroleum Reserve. This will be the only card held by the U.S. authorities and politicians, who will want to show they're doing everything they can to help. The reserve isn't that big, but the effect will be more psychological. It's a way to show they're committed politically, and to increase pressure on OPEC.'
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Adding to the quota figure instead of the output figure could mean that OPEC production increases by less than what consuming nations want.
The world is consuming more oil than it produces by about 2 million barrels a day,
While an increase in that range has been mentioned before, it wasn't clear until now that the boost would be on top of the group's official target of about 23 million barrels a day. There was some speculation that OPEC would take into account actual output that's closer to 24 million -- with the extra million barrels coming because of excess production by some members.
A rise in production ``may be enough to stop oil prices from going up much, but possibly not enough to weaken the price,' said Keith Morris, an oil analyst at Paribas Capital Markets. ``It's going to stabilize the price at the present level.'
An increase of 2 million barrels day from quota levels is already factored into the price, said Jurjen Lunshof, an analyst at Credit Lyonnais Securities.
OPEC's production increase is likely to be closer to 1 million barrels a day than 2 million, a non-Gulf oil official said. A method for allocating the extra oil among OPEC members hasn't yet been determined.
Using quotas as their base, instead of current output, could mean that OPEC production increases by less than the amounts that consuming nations want.
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``It seems like we'll see a 1.5 million (barrel-a-day) increase from existing quotas, and that's not enough,' said Jack Kellett, a trader at Credit Lyonnais Rouse Ltd. ``If it happens, it will be bullish. Oil may return to $29 a barrel.'
A lack of clarity from OPEC is limiting market activity, traders said. ``Major market-makers have stepped aside for now,' Kellett said.
Christopher Bellew, a broker for Prudential Bache said: ``What (OPEC) is going to do now will only push prices to edge higher,' he said. ``WTI (crude oil traded in New York) will go above $30 again. They'll have agree for another increase.'
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So far, there have been few signs that gas prices are affecting customers' choices. This year through February, sport utility sales rose 13 percent from the year-earlier period, outpacing the industry-wide rate of 11 percent, Autodata Corp. said. Sales of large sport utility vehicles, such as GM's Yukon and Ford's new Excursion, are up 19 percent.
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The head of EIA reiterated on Friday that OPEC must increase its oil production by three million barrels per day (bpd) above the cartel's current quota to push oil prices down to their historic average.He said the historical price range he was referring to was $20 to $21 a barrel.
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Mexico Cautions On Blunt Tactics
Sydney Morning Herald, March 24
Mexican Energy Minister Luis Tellez said Mexico had decided on an oil production increase of less than 325,000 barrels a day after 1 April 2000. Picking his words carefully, Tellez also cautioned the United States not to be too blunt in pressing the oil producing nations for increases, warning that heavy lobbying could backfire by stirring nationalistic political opposition at home.
A group of U.S. lawmakers will stay away from next week's OPEC meeting after Energy Secretary Bill Richardson said not to go because oil producers already resent pressure from Washington to boost supplies to reduce prices. ``Some OPEC governments already believe that we are pressuring them too much,' said Richardson in a March 19 letter to U.S.
Representative Joe Barton. ``My ministerial contacts indicated that a strong U.S. presence on the margins of their private meetings could actually hurt our goals by adding to this perception of U.S. pressure.' |
