VIENNA, 30 March 2004 — OPEC producers were divided yesterday over whether or not to bow to consumer country demands and take steps to rein in runaway oil prices.
The Organization of the Petroleum Exporting Countries, meeting tomorrow, is under pressure to reverse or postpone scheduled supply cuts that this month sent US oil prices to a 13-year peak.
Some in OPEC admit prices are uncomfortably high and favor postponing a February deal, agreed in Algiers, to cut crude supplies by four percent from April.
“The Algeria agreement can be reviewed, it is not compulsory,” said UAE Oil Minister Obaid Al-Nasseri. “There are different opinions that will be discussed including postponing implementing the Algeria agreement.” Others blame this year’s record speculative investment in oil for inflaming prices and worry that big US hedge funds are preparing to exit the market, sparking a price slump.
“It’s our position that in the second quarter there will be a reduction in demand so we will work for the cut in production to support prices,” said Algerian Oil Minister Chakib Khelil. OPEC’s February decision to cut production by a million barrels a day from April 1 sent US crude this month racing above $38 a barrel, the highest closing price since the 1990-1991 Gulf War. But crude fell $2.35 a barrel last week as investment funds pocketed some profits.
US crude eased another 36 cents to $35.37 a barrel yesterday, read by traders as hardening the chances that OPEC will stick to planned curbs.
The price of benchmark Brent North Sea crude oil for May delivery shed 48 cents per barrel to $31.51 in late trading in London.
“Ministers will seek a balance between engineering a soft landing for oil prices and guarding against a more precipitous fall,” said analyst Paul Horsnell of Barclays Capital.
OPEC’s biggest customer the United States fears the organization’s impressive record of market management is posing a growing threat to economic recovery.
The Bush administration changed policy last week, announcing publicly for the first time that it was trying to talk OPEC into easing open the taps.
US investment bank Goldman Sachs released a report estimating that the oil price surge may subtract 0.3 percent this year from the gross domestic product of the world’s seven biggest economies.
“The impact of higher oil prices may have been masked so far by the boost to real incomes from US tax cuts - but as these fade in the second half, the impact of continued high prices is likely to come to the fore,” the report said. Some in OPEC are worried that slower seasonal second quarter demand is already allowing world oil inventories to build more rapidly than it would like.
US crude stocks last week recorded a strong 7.5-million-barrel build, lifting inventories 12 million barrels, or four percent, above year-ago levels.
US gasoline prices at the pump shot to a record high, surveys showed yesterday, and analysts predicted further gains straining drivers and the car-addicted economy.
Regular unleaded rose seven cents from a month ago to a record average of $1.75 a gallon (up 1.8 cents to 46 cents a liter) Friday, an American Automobile Association (AAA) survey showed.
US commercial inventories of gasoline fell 100,000 barrels to 199.5 million in the week ending March 19, 4.0 percent lower than the five-year average, according to the Department of Energy.
An International Energy Agency (IEA) official meanwhile said seasonal patterns dictated that oil stocks needed to be supplemented in the second quarter and that OPEC should pump more oil onto the market where spare crude capacity was currently below average.
“Spare capacity usually runs at four to five million barrels per day and is currently at one million,” Klaus Rehaag, head of IEA’s oil industry and markets division, told AFP in Dubai. “Our comment is that if you look at seasonal pattern, stocks need to build in the second quarter, especially for gasoline” when US motorists take to the roads for the summer driving season.
“In order to meet peak demand, you have to build stocks,” Rehaag said on the sidelines of the Intertanko Dubai Tanker Event 2004.
