OPEC kept the markets guessing until the final die was cast. Faced with weak dollar and market fundamentals to the contrary, by taking the decision last week to cut the crude output by an additional one million barrels, OPEC wronged a number of pundits and analysts who were saying the oil group may reverse or at least defer implementation of its Algiers decision.
Pressure was visibly there on the ministers meeting in Vienna. US Energy Secretary Abraham Spencer told a House Energy and Commerce Committee hearing after the OPEC announcement, “I know that he (Bush) has had conversations with most of the leaders of the OPEC.” Abraham declined to respond to a Democrat senator’s question on whether the president had spoken to the Saudi leaders on the issue. After reports that Saudi Arabia, despite reservations from Kuwait and the UAE, led the push to cut OPEC production by 1 million barrels a day from April 1, the Kingdom made it clear that OPEC policies were not responsible for strong crude prices.
High US gasoline prices were to be blamed on America’s tough environmental laws and lack of refining capacity, Adel Al-Jubeir, foreign affairs adviser to Crown Prince Abdullah, told the US media. “There has not been a refinery built in America in the last 20 years. So if you produce more crude oil but you can’t refine it, it is not going to translate into gasoline,” he emphasized. He went on to add, “In fact, there is a slight surplus (in the market) and that’s why OPEC (decided) to cut back.” It seems market fundamentals are being looked at differently from different sides of the fence.
The Saudi ambassador in the US, Prince Bandar ibn Sultan, had an unannounced meeting with President Bush last Friday. The meeting was apparently to discuss the crude price issue and the OPEC decision. After the meeting, Prince Bandar assured the world that “Saudi Arabia will not allow any shortages in energy supplies.” He went on to emphasize, “We do believe that the price of a barrel of oil should range between $22 and $28, as set by OPEC and we are keen on keeping the price at $25.”
A united front has been the cornerstone of OPEC’s market management success since 1998s crude price crash. The decision then, by Saudi Arabia, Venezuela and Iran, to forge a united stand on oil issues so as to ensure reasonable returns for their black gold resulted in firming up the markets from the lows not seen in decades. It has been a win-win situation since then. Cracks in OPEC ranks could thus be disastrous. And despite the OPEC decision, everyone realized the cartel was still faced with the perennial problem of quota busting. The Kuwaiti oil minister admitted, “I think there will be some overproduction by all members.”
In the meantime, a number of factors seem to be exerting a soothing effect on global crude markets. There have been reports that the US administration was thinking of releasing gasoline from its strategic petroleum reserves. The news that the US crude oil and gasoline inventory levels have gone up also helped in softening the markets. Further US environmental authorities were also reported to be considering waiving a clean-fuel requirement in three states. All this helped the crude prices go down.
Meanwhile, it has also been reported that Alaskan Governor Frank Murkowski has announced he would open lease sales in state waters offshore of the Arctic National Wildlife Refuge, extending out three miles in the Chukchi and Beaufort seas, and the national petroleum reserve - Alaska. It is unclear how much of the area will be leased, but the two areas amount to about 1 million acres. About 670,000 acres of submerged lands lie off the coast of the petroleum reserve and the 350,000 acres are off the coast of the wildlife refuge. The lease sales scheduled for October this year could lead production wells to offset the nation’s dependence on foreign oil, Murkowski added. He clarified, despite opposition from the “America’s extreme environmental community,” he would do what he can as governor to spur Arctic oil development.
