As the OPEC oil ministers sat down in Vienna last Monday for a regular two-day session, a number of factors were already weighing in on them. Crude markets have been in turmoil for an extended period of time now and despite a number of steps by the oil producers’ nothing seems to have succeeded in taming the rising oil prices in the global markets.
In the meantime, constant pressure also has been building up on oil producers “to do” — something, to cool down the markets. British Chancellor of the Exchequer Gordon Brown has been in the forefront of the drive to put pressure on OPEC. He told the BBC, a few days before the Vienna moot, that OPEC had failed to respond quickly enough to respond to the surging demand for oil from China. He urged the OPEC to increase supplies and relieve pressure on prices.
Indeed Brown was playing to the gallery. He was in the midst of a brewing crisis as fuel protests throughout Europe, including the UK were very much on cards. However, despite assertion by the chancellor, even his parliamentary colleagues were not ready to take his line. Shadow Transport Secretary Alan Duncan said none else but “Mr. Brown was to be blamed” for the (fuel) crisis. “This problem is entirely of the chancellor’s own making, and with the deteriorating public finances in this country, the chancellor has left himself no elbow room.”
However, besides Brown, others too were adding to the pressure on the oil organization. The EU finance ministers in a statement urged the OPEC to produce more. The International Energy Agency also seemed to be clamoring for more oil on the markets.
But are there takers for the additional crude in the markets. All these clamors for more seemed hollow when looked from the market perspective.
Saudi Arabia underlined its position at the highest level, when the Crown Prince Sultan reiterated in the US that Saudi Arabia was willing to put the additional barrels — if indeed required.
The situation as it stands now; there are not many takers in the market for additional oil. In fact according to market watchers, of the 30 million barrels of crude released from the US Strategic Petroleum Reserves in the aftermath of the Katrina crisis, only 11 million barrels were sold. There were 19 million barrels that no one wanted. Even the OECD energy watchdog, the IEA which offered to release 60 million barrels of oil from their strategic reserves announced later it would neither extend the release period, nor increase the volume of releases, underlining lack of appetite in the global crude markets.
And that is what oil producers and especially Saudi Arabia has been emphasizing all these months — and — years. The current rise in oil prices does not stem from a shortage in crude oil supplies but is due to, as everyone knows, is emanating from demand side, Crown Prince Sultan reiterated before a select New York audience.
The London-based Center for Global Energy Studies, in its September Monthly Oil Report released only on the day the OPEC ministers’ met in Vienna clearly emphasized, “There is no obvious supply side route out of the present period of high oil prices. It seems change can only come through a collapse in demand growth, which would ease some of the capacity constraints.”
It seems oil prices are no more responding to the level of crude oil inventories as they have in the past. Despite the fact that slowed dramatically since 2Q04, it continues to outstrip the pace of non-OPEC supply growth and OPEC capacity additions as well as global increases in refining capacity, the CGES report underlined.
