The oil markets are again both volatile and erratic. As soon as they reopened on Tuesday, the prices were already showing signs of surpassing the recent highs. Sentiments in the market place — and not short supplies — were believed to be mainly responsible for the ongoing havoc in crude market prices. This goes on despite assurances from Riyadh, the world’s largest exporter.
Even before the events in Alkhobar, market pundits were feeling the heat of the security situation in the region. There was a definite apprehension about continuity of supplies from the region, and that in turn was causing the prices to spiral to newer and newer heights. Pierre Terzian, of the magazine Petrostrategies in Paris, said last week, before the Alkhobar incidents, “if oil exports were to be disrupted by fresh attacks on the fields in the Gulf, like those at Ras Tanura, Jubail or Basra, there will be real production deficit and an increase in the insurance rates, which will turn speculative attacks and price increases.”
However, this fear factor will be countered by the Saudi assurances to the world market that it has taken all steps to ensure continuity of oil supplies to the world. Saudi Aramco executives have gone out of the way to soothe the nerves of the global oil industry.
Realizing the market concerns, not only Saudi Arabia has moved fast to quell any possible riots in the prices, OPEC as a group has also joined to calm down the markets, to the extent they can.
Just a few days prior to the crucial Beirut meeting taking place today Omar Ibrahim, head of the OPEC information department said, “Almost immediately three OPEC countries can produce up to three million barrels more. They are Saudi Arabia, Kuwait and the UAE. But its effect will probably not last longer than 48 hours ... as supply and demand is not really the issue. The current situation will only be solved permanently if we look beyond just supply and demand, we also look at geopolitics, we look at the problems of the United States,” he said. However, Omar further added that the 11-member OPEC “was concerned about global security and stability, and we are especially concerned about security in our member countries including Saudi Arabia and Iraq.”
In order to take the heat out of the crude markets, the OPEC president also hinted that at the Beirut meeting the oil producers’ group would consider several options. Purnomo Yusgiantoro hinted that OPEC could decide in its Beirut meeting to increase its overall production. Another approach, according to the OPEC president, would be to increase quotas by more than 2.0 to 2.3 million barrels a day, especially in view of the fact that Saudi Arabia proposed a quota increase of 2.3 to 2.5 million barrels a day.
However, last Friday, yet another option available to OPEC was also hinted at. A source close to the producers’ group was quoted as saying that a suspension of OPEC production quotas completely was an option that could also be discussed in Beirut. In case this course is adopted, it would definitely appease many in the West. All eyes are focused today not on Alkhobar or Dhahran, but on Beirut.