The planned OPEC output cut by one million barrels a day starting April 1 may be two weeks away, but oil markets have already started to behave erratically. Debate over whether the cuts should take place or not has divided opinion in many quarters.
Saudi Arabia, the leading oil producer, told its main customers that supplies will be reduced from the beginning of the next month by 8-11 percent in April. Japanese and South Korean buyers were informed of similar cuts, between three and 10 percent, by Saudi Aramco. South Korean oil refiners are already seeking alternate supply sources in the wake of announced cuts.
Consequently, oil prices have climbed over the last couple of weeks after initially tumbling on reports that the US may take less crude for its Strategic Petroleum reserves. Last Friday, the US Senate moved to prevent more shipments to the US emergency crude stockpile in an effort to cool down the market.
Since the announcement by Saudi Arabia, US crude prices in New York have been enjoying post-Iraq war highs of about $37 a barrel.
The market is also concerned about a possible of repeat of last year’s oil stoppages in Venezuela, after mass protest against President Hugo Chavez and the uncertainty surrounding a political transition plan in Iraq.
Despite all the announcements and the uncertainty in the market, OPEC is still grappling with the perennial problem of over production.
A Platts survey indicated that OPEC’s 11 members, including Iraq, pumped an average of 27.93 million bpd of crude in February. This was 170,000 bpd less than the January.
In spite of the downward drift, the OPEC-10 were still producing 1.5 million bpd more than their current ceiling of 24.5 million bpd. Saudi Arabia was one of the six OPEC members to reduce output in February. The Platts survey reported that Saudi Arabia produced 8.450 million barrels a day in February compared to 8.530 million bpd in January.
The total decline in February output by six OPEC members was partially offset by 50,000 bpd in combined increases from Iran, Libya and Nigeria.
Venezuela and Indonesia were reported to be the only two countries within OPEC to have produced within their allocated quota limits.
In the meantime, divergent views are being expressed on the issue of lowering the OPEC output ceiling further from April 1. The Iranian oil minister believes that the markets are adequately supplied, and that higher prices were caused by factors “out of our control”, hinting at political developments in Iraq and Venezuela. He expressed Tehran’s commitment to reducing crude production.
Iran has also told some of its main buyers it was reducing their allocation effective April 1, in view of the OPEC quota cuts. Venezuelan minister has also expressed similar arguments.
The UAE oil minister was quoted as saying that the OPEC could delay implementing its decision. “OPEC could revise its decision if there are new developments between now and the next meeting and if ministers feel it is necessary,” UAE oil minister Obeid Saif Al-Nassiri clarified in Abu Dhabi.
— 18 March 2004
