The 9th International Energy Forum to be held in Amsterdam from May 22-24 has assumed added significance because of the turmoil in the oil markets and the possibility of a consensus emerging within OPEC ranks on the issue of increasing their current output ceiling. OPEC oil ministers are expected to hold an extraordinary meeting in Amsterdam on the sidelines of the Forum to discuss the Saudi proposal to increase their current official output of 23.5 million barrels a day by something around 1.5 million barrels a day.
The OPEC decision was expected to be formalized later during the next OPEC regular ministerial meeting in Beirut early June. In the meantime, in order to soothe the charging crude markets, already having crossed the $40 a barrel psychological mark last week, Saudi Arabian Oil Minister Ali Al-Naimi confirmed in Dammam earlier the week after addressing the First International Gas Conference that Saudi Arabia has a spare capacity of 2.5 million bpd and in case of any requirement, the spare capacity could be activated within weeks and not months, as some have been suggesting.
During the Amsterdam meeting, the OPEC ministers are also expected to meet non-OPEC producers and consumers to discuss the rising crude oil prices.
It indeed could be hazardous to predict the outcome of the OPEC ministerial meeting on the sidelines of the 9th International Energy Forum in Amsterdam. OPEC over the years has mastered the art of confounding the pundits. In past on a number of occasions, OPEC has proved all predictions and projections wrong. It has its own way of looking at things. It is definitely weary of a price crash due to oversupplies in the market and therefore has to be cautious in its approach. After all most of the OPEC member states are to a very great extent single product economies. Oil is their lifeline; their bread and butter and they cannot and should not take any chance with it.
Kuwait, the United Arab Emirates and Iran are expected to back the Saudi proposal, whereas Venezuela said last week there was no need for any supply increase. “Venezuela’s position has not changed. (An output increase) would not be convenient,” Venezuelan Energy Minister Rafael Ramirez said during a visit to Argentina.
And all this is taking place in the midst of projections that oil demand this year has grown the most since 1988. The daily average consumption of gasoline, diesel and other fuels will rise by 1.95 million barrels a day, 270,000 more than the last month’s forecast, to 80.6 million bpd, the Paris based International Energy Agency projected in a recent report. Last October, the IEA forecast was that the demand would rise by 1.06 million bpd — a comparatively compromised figure as compared to the current projection.
In the report, the IEA also revised its projection of call on OPEC by 500, 000 bpd to an average of 26.4 million bpd during the year. In view of the security concerns in the oil producing region, many governments were also reported to be stocking up on oil — adding to the market woes. As per reports, the US Strategic Petroleum Reserve has been a particularly active buyer and even the Chinese seem to be quite active in the crude markets. At the same time, traders in the futures and options markets, anticipating tighter markets, are bidding the forward prices up. The crude markets thus continue to surge, despite the efforts to cool it down. Market fundamentals are dictating their terms.