OPEC has virtually opened its taps yet the bull run continues, signifying an issue deeper than the question of supply and demand. To many, the global energy markets are not heating up because of any lack of supplies in the markets. There is a definite concern in the market about the security of supplies from this prime oil-producing region. Allied with the lack of refining capacity in its biggest market — the US — crude markets are indeed faced with a daunting task of balancing. But can OPEC be blamed for all this mayhem in the global energy markets, as some are trying to portray?
OPEC President Purnomo Yusgiantoro said last Wednesday that OPEC was currently producing 1.5 million barrels per day (bpd) more than its official output limit and strongly contended that there was enough fuel in the market.
UAE Oil Minister Obaid Bin Saif Al-Nasseri also believes OPEC is already pumping some two million barrels daily in excess of formal limits, largely ignoring the supply curbs that were supposed to come into effect last month. Algeria’s Oil Minister Chakib Khelil says high prices are instead a result of China’s red-hot oil demand and political instability in the Middle East.
Excluding Iraq which does not participate in OPEC output accords, the 10 members bound by quotas produced an average of 25.69-mil bpd in April, though down 370,000 bpd from 26.06-mil bpd in March, but still 2.19-mil bpd more than their 23.5-mil bpd ceiling, which was to come into effect on April 1, a Platts survey of OPEC and oil industry officials showed.
“These numbers show that OPEC never came close to implementing its 1-million bpd cut in April and all our early reports for May and even into June show no further significant cuts likely.
That’s the good news for consumers,” said John Kingston, global director of oil for Platts. “The bad news is that we are well into the second quarter, when a hefty level of OPEC production was supposed to collide with the traditional weak demand period and push prices downward. That is obviously not happening, and that’s troubling to the economy.”
The Platts survey adds that only Indonesia, whose crude output is declining, and Venezuela, whose upstream industry has yet to recover fully from a crippling two-month oil strike in the winter of 2002-2003, produced less than their official output quotas. Quota busting, for the time being at least, is not being seen as a crime and a problem. In fact it is the answer to the whole problem, some say.
The markets perceived the attacks in Yanbu and Basra as signs of vulnerability of the markets and hence reacted fiercely. A market correction mechanism apparently came into play and pushed the prices still higher. OPEC could definitely not have influenced it in any big way.
“People are watching events in the Middle East very closely. We could be getting toward the point when supplies will be disrupted and that’s very worrying,” said Tony Machacek of Prudential Bache brokerage while commenting on crude crossing $40 mark, in the US, for the first time in 13 years since October 1990-91, shortly after the Iraqi occupation of Kuwait.
Some OPEC officials also believe, not entirely wrongly, that another factor responsible for the current spike in crude prices is the ongoing betting by speculative investment funds on oil futures.
In view of the recent firming up of the crude prices in the markets, even the hawk within OPEC — Iran — is also signaling agreement to a further increase in the OPEC output quota by 1 million barrels a day. “If OPEC decides to boost its production, Iran will not oppose it,” Iran’s OPEC Governor Hossein Kazempour Ardebili told the press last Saturday.
Iran’s backing is needed for a supply increase that appears likely to be proposed by Gulf OPEC member the United Arab Emirates when the producer group meets in Beirut on June 3.
