Joke of the day: Saudi Arabian oil minister says there is no excess production of oil!
One of my favorite must-read sources is this web site, stratfor.com
Today it says,
At the recent inauguration of Venezuela's
President Hugo Chavez, the Saudi Arabian
Minister of Petroleum and Mineral Resources
met with the new Venezuelan Energy and Mines
Minister in an attempt to resolve their differences
over OPEC oil production quotas. The Saudi
representative made the extraordinary claim that
"There is no excess production on the world oil
market, but rather excess oil inventory." Other
members of OPEC -- including Iraq, Iran, and
Kuwait -- have all publicly criticized Saudi policy
regarding oil production quotas. Indeed, the
Venezuelans, in a reversal of their own
quota-busting policy, are now contacting
non-OPEC producers in an attempt to rein in
production. In spite of these efforts, we are
facing significant overproduction over the short
term as oil producing countries fight for market
share in order to cover debt service.
ANALYSIS
During a meeting held on February 2 between
Saudi Arabia's Minister of Petroleum and
Mineral Resources, Ali Bin Ibrahim al Naimi,
and new Venezuelan Energy and Mines Minister
Ali Rodriguez Araque, al Naimi denied the
existence of excess oil production on the
international petroleum market. Visiting Caracas
on the occasion of the inauguration of
Venezuela's new President Hugo Chavez, al
Naimi said, "There is no excess production on
the world oil market, but rather excess oil
inventory." Following his discussion with the top
Saudi oil official, Rodriguez said that Venezuela
would now initiate meetings with oil officials in
Mexico, Norway, Russia, Colombia, and
Ecuador to discuss a new strategy for shoring up
sagging oil prices. The Saudi's new rigid stance
regarding oil production seems to have
prompted the Venezuelan Minister to exclude
the Saudis from future negotiations. Apparently,
the Saudis see no need to reduce production,
nor will they promote any coordinated plan to
enable other oil producers' to slash output. Saudi
Arabia's retreat from the use of production cuts
to resolve the critical issue of low oil prices is
both an indication of the ineffectiveness of
previous measures taken to improve oil prices,
and a possible indication of a sea change in
producers' market manipulation strategies.
There are numerous indications that an OPEC
resolution passed during its semi-annual meeting
in June 1998 to cut a total of 2.6 million barrels
per day (bpd) from February 1998 levels is not
being respected, despite the fact that this cut was
extended during the November 1998 follow-on
meeting. And with this failure to coordinate
production, a major conflict among oil producers
has emerged, which in turn has prevented new
concerted efforts to reduce production.
According to most recent oil industry surveys,
OPEC output of 27.81 million bpd in January
was up by 360,000 bpd from 27.45 million bpd
in December of last year. Non-compliance with
agreed oil-production quotas inside OPEC
continues.
Some Gulf oil producers are now accusing Saudi
Arabia of having unleashed the current oil crisis
by advocating an increase in OPEC's production
quotas late in 1997, despite the Asian economic
downturn, and for pumping excess oil today. For
instance, Amir Muhammad Rashid, Iraq's
Minister of Oil, sent a letter to Youcef Yousfi,
who serves both as president of OPEC's
ministerial conference and as the Algerian Energy
and Mines Minister, demanding that the Saudis
cut their production quota in line with the July
1990 agreement. Such reduction would not only
bring Saudi oil output down to 6 million barrels
per day, which represents about 30 percent
reduction from its current production quota, but
it would more significantly reverse the economic
consequences for Iraq of the Gulf War. The
Iraqis also issued a call demanding that all parties
respect OPEC resolutions and for the adoption
of new "flexible ceiling" that would take into
consideration petroleum market fluctuations.
Iran has also lately issued strong statements
regarding Saudi Arabia's oil policy. On January
27, the English-language Iran News Oil quoted
the head of Iran's parliamentary oil commission,
Morteza Zarrin Gol, as saying that "Saudi Arabia
has weakened the oil market and inflicted more
damage on Iran with its oil policy than Iraq did
during its 1980-88 war with Iran. Unfortunately,
Saudi Arabia has played a key role in the
weakening of the oil market and reducing oil
prices." According to Zarrin Gol, Iran has
always believed that Saudi Arabia's OPEC
production quota (which is 8 million barrels as
compared to the quota of 3.3 million barrels
assigned to the second largest OPEC producer,
Iran) is excessive. Truly alarming from the
perspective of the oil producing countries,
however, were Zarrin Gol's statements regarding
future developments inside OPEC. "I regret to
say that there is no spirit of cooperation among
OPEC member countries. All they want to do is
eliminate their market rivals. This policy has
worked only to the benefit of oil consuming
countries," he said. Moreover, Zarrin Gol
expressed skepticism that further production cuts
by OPEC would have the desired impact on oil
prices, claiming that such actions by OPEC
would only lead to an increase in oil production
by non-OPEC oil producers.
Dissatisfaction and frustration with the lack of
discipline inside OPEC is also growing among
smaller OPEC oil producers. In late January,
Youcef Yousfi and Kuwait's Oil Minister, Sheikh
Saoud Nasser al Sabah, called for moving up by
one month the planned OPEC meeting, which
was originally scheduled for March 23. This
initiative failed due to the unwillingness by OPEC
members to cooperate in implementing the
organization's previous resolutions. According to
the Kuwaiti daily Al-Watan on February 1,
Nasser al Sabah justified not rescheduling the
meeting in the following terms, "Some
o0il-exporting countries have taken a clear
position against non-compliance of production
cuts by deciding not to attend any future OPEC
meeting until it is confirmed that all members
have fully complied with cuts. If there is going to
be an OPEC meeting, it will not take place
unless its aim is further reduction." Clearly the
Kuwaiti Oil Minister is now prepared to up the
ante on the other members on OPEC by holding
future meetings hostage to a predetermined
agenda.
While Saudi Arabia, which is experiencing
increased pressure to curb production by OPEC
producers, has apparently decided to stop
cooperating with efforts to stabilize oil prices by
reducing output, the other major OPEC
overproducer, Venezuela, apparently is moving
in an opposite direction. The new Venezuelan
Energy and Mines Minister, Ali Rodriguez
Araque, seems to be more willing to cooperate
with OPEC than his predecessor Ervin Arrieta
was. Rodriguez announced recently that
Venezuela will initiate "a very intense interchange
with the OPEC and non-OPEC countries to
secure an agreement aimed at generating a
recovery in oil prices." Venezuela also intends to
negotiate with such non-OPEC producers as
Mexico, Norway, Russia, Colombia, and
Ecuador. Given the apparent unwillingness of
Saudi Arabia to discuss the issue of
overproduction, the question is, whether any
future concerted action could be expected from
OPEC and other major oil producers. The
prospects for reaching an agreement about future
output cuts or even extending the existing ones
are slim. OPEC's impotence has never before
become so transparent.
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I find this article very interesting because it coincides with my own opinion of Saudi Arabia's policy that there is an all out production effort under way to punish Venezuela for its policy of breaking its agreements to OPEC as well as a deliberate effort to remove marginal oil producers such as our own stripper wells from the future oil market. I think that is what it is meant by a sea change in oil producers' strategies. I think it is interesting that Venezuela has taken on the responsibility to try to repair the damage it has done itself and to try to organize production cuts on its own. Iran and Iraq are making statements that politically take advantage of the Saudi Arabian situation in OPEC even though their own motives make their arguments weak.
As oil fields age, the cost of removing residual oil increases. I think on average our own oil fields are aged and oil production is costly for us, at least on land. The longer Saudi Arabia maintains its oil production policy, the more the USA becomes vulnerable to future oil shocks as its importation of oil increases. I think this makes the EPACT 92 deal even more imperative, not only to GRNO, but to the future of the USA. While the amount of additional energy GRNO creates is tiny, it coincides with what our own national destiny demands, reduction in pollution and reduced dependence on foreign sources of energy.
Charles |
