OPEC's Odd Position: Complaining of High Oil Prices
www.nytimes.com By ERIC PFANNER
LONDON, Jan. 20 — The surge in oil prices caused by a loss of production at a leading exporter and the possibility of an American-led attack on another has created a rare spectacle: the president of OPEC, a cartel once feared for its ability to control prices, publicly complaining that current levels are too high.
Those were the straits into which Abdullah bin Hamad al-Attiyah, president of the Organization of the Petroleum Exporting Countries, was forced last week as oil prices hovered at two-year highs.
Only days before, OPEC ministers meeting in Vienna had agreed to step up production in an unsuccessful effort to keep prices from rising further, after antigovernment strikes in Venezuela had virtually halted exports from that country and the threat of war in Iraq had raised the prospect of shortages.
Though the 10 OPEC members — 11 counting Iraq, whose production is monitored by the United Nations — still pump a third of the world's oil, their power is a far cry from the 1970's, when an oil embargo sent the global economy into recession. After oil prices fell into single digits in 1998 and 1999, OPEC managed to engineer an increase, but only when it acted in concert with several nonmember countries. Getting prices to fall has proved more difficult.
In part that is because other producers have stepped up output and exports, reducing OPEC's market share. The group still has a virtual monopoly on spare capacity. While demand for oil has risen slowly during a global economic downturn, that capacity is not enough to deal with the unexpected overlap of production losses in Venezuela and, possibly, Iraq. OPEC's response in Vienna, colored by internal politics, failed to send the clear message that the market needed to bring a cap on prices.
"The oil business is feast or famine," said Gary N. Ross, chief executive of the PIRA Energy Group, an international energy consultancy in New York. "They are trying to wrestle with a beast that's very hard to get your arms around."
Mr. Ross said OPEC deserved credit for keeping prices within a range of $22 to $28 a barrel for about two-thirds of the time since March 2000, when ministers decided that level would balance their needs for revenue with those of a global economy hungry for affordable oil. OPEC was concerned that if the price strayed stubbornly above that range, it could affect long-term demand, as importers would turn to non-OPEC producers, invest in developing their own supplies and seek alternative energy sources.
As strikes against the government of President Hugo Chávez turned off the taps on Venezuela's nearly three million barrels a day of oil output in December, analysts say Saudi Arabia, in particular, has been keen to show its good intentions. Stung by anti-Saudi sentiment in the United States in the wake of the terrorist attacks, Saudi Arabia has sought to reassure the market that it stands ready to make up the shortfall.
"They have made a virtue out of necessity," said Peter Gignoux, head of the petroleum trading desk at Schroder Salomon Smith Barney in London. "If they put more oil on the market they can wrap themselves in the mantle of global citizen."
But the agreement reached in Vienna, in an emergency meeting called at the request of the Saudis, left unclear how much oil would actually reach the market, and when. Instead of simply announcing a temporary increase in production quotas for those countries most capable of closing the gap — Saudi Arabia and the United Arab Emirates — OPEC came up with a political solution.
In an effort to ease Venezuela's fears of losing market share, the group raised the quotas for all members on a proportional basis, including Venezuela, which is pumping only a fraction of the oil allowed under its old, smaller allotment of 2.65 million barrels a day.
"The actual amount of what you are getting from the OPEC decision is so much less than what they are saying," Mr. Ross said. OPEC raised its overall production quota to 24.5 million barrels a day, from 23 million, as of Feb. 1, but analysts say production will probably fall short by at least one million barrels.
Since the meeting, Saudi Arabia has said it will produce as much as nine million barrels a day by February, a million more than even the new quota prescribes, in an effort to keep the markets supplied. But that oil takes six weeks to reach American ports, rather than the one-week trip for Venezuelan shipments.
As talk of war in Iraq heats up, oil buyers are eager to lock in supplies, even at the current high prices. In London on Monday, the price of Brent crude for March delivery rose 11 cents, to $30.65 a barrel.
"Oil prices at the moment are not determined by fundamental supply and demand but by psychology," said Axel Bush at the Energy Intelligence Group in London.
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