THREAT BY OPEC TRIGGERS WARNING
By Javier Blas
Financial Times (London)
February 1, 2008
VIENNA -- OPEC’s threat to cut oil production if the U.S. economic slowdown triggers a price fall, and its agreement on Friday to leave its output limits unchanged, threaten the strength of the global economy, the International Energy Agency said.
The watchdog added: “With the current pressures from the financial system, the economy does not need additional downward pressure on consumer spending and growth from near record oil prices.”
The warning came hours after the oil producers’ cartel rebuffed calls from consuming countries to raise its output. The Organization of the Petroleum Exporting Countries warned it would follow the oil market with “vigilant attention” ahead of its next meeting on March 5, suggesting a cut was more likely than an increase.
The White House said it hoped OPEC understood its decision had a “real impact on the economy.” Last month, U.S. president George W. Bush issued a rare appeal to King Abdullah of Saudi Arabia for more oil.
OPEC officials were quick to dismiss the notion that current oil prices are contributing to slower economic growth or have pushed inflation upwards.
Abdullah el-Badri, OPEC secretary-general, said the U.S. economic crisis was not caused by oil prices, but “by the subprime mortgage crisis that started seven to eight months ago.” Other officials said record high wheat prices were having a larger inflationary impact than oil prices.
Crude oil prices on Friday fell $1.85 to $89.90 a barrel on weak U.S. economic growth.
OPEC said it was concerned about potential ramifications of the U.S. economic slowdown, including a potential drop in energy demand. Chakib Khelil, OPEC president, said: “A U.S. recession will lower the demand for crude oil.”
OPEC’s price hawks -- Venezuela and Iran -- indicated OPEC should be ready to cut production as early as March. Other countries said they were open to the idea. Mohammad al-Olaim, Kuwait’s oil minister, said: “All the options are open for March.” But delegates said Saudi Arabia, under pressure from Washington, would oppose such a move unless prices fell significantly. Riyadh has covertly raised production in the past two months to 9.2m barrels a day, the highest since summer 2006, in an apparent attempt to cool the market.
Ali Naimi, OPEC’s de facto leader, said current market fundamentals were “sound,” therefore requiring neither a supply increase nor a cut. “Supply and demand are equal, and global reserves are fine,” he said.
OPEC SNUBS U.S. PLEA FOR EXTRA OIL
February 1, 2008
VIENNA -- Oil cartel OPEC maintained its output ceiling here Friday, adopting a wait-and-see approach amid fears of a global economic slowdown that would dampen energy demand and further cool crude prices.
The Organization of Petroleum Exporting Countries ignored U.S. President George W. Bush's recent plea for an increase in production to help reduce high oil prices that stunt economic growth and fuel inflation.
Fears of a U.S.-led economic slowdown have sent crude futures crashing 10 percent since striking record highs above 100 dollars a barrel at the start of January. However by Friday, they were still almost double the levels of a year ago.
"I don't think the world should be concerned about a lack of oil. It should be more concerned about the financial crisis we are witnessing and its impact on world growth," OPEC conference president and Algerian oil minister, Chekib Khelil, told a press conference after the output decision.
The 13-member OPEC, which accounts for 40 percent of the world's oil output, decided to keep its official daily production at 29.67 million barrels at an extraordinary meeting in the Austrian capital, insisting the market was well supplied.
The organization was to meet again on March 5 in Vienna for a regular gathering.
Friday's production freeze -- described by Nigeria as "a unanimous decision" -- was a snub to the United States.
Lower oil prices are not welcomed by crude producers as their export income drops. Saudi Arabia, the world's biggest exporter of crude, is producing about 9.0 million barrels of oil per day, so even small changes in prices significantly affects the kingdom's revenue.
OPEC on Friday insisted the world was being supplied with enough oil.
"In view of the current (supply) situation, coupled with the projected economic slowdown, the conference agreed that current OPEC production is sufficient to meet expected demand for the first quarter of the year," it said in a statement.
"At the same time, however, the conference noted that the significant uncertainties associated with the projected downturn in the global economy called for vigilant attention to their impact on key market fundamentals (of supply and demand) until its next meeting."
A U.S. recession would dent demand for crude in the world's biggest energy market and send oil prices sliding further, OPEC warned on Friday.
"We are more concerned about the economy and the crisis in the U.S.," OPEC president Khelil told the press conference.
"Its ramifications and impact on the world economy in the medium term and longer term probably will have some impact on (crude) demand," he added.
New York's main oil futures contract, light sweet crude for delivery in March, was down 1.25 dollars at 90.50 dollars per barrel in the wake of surprisingly weak U.S. jobs data, published after OPEC's decision.
Oil had hit a record high of 100.09 dollars on January 3, fuelled by speculative buying and strong crude demand by China, according to analysts.
Kuwait's acting oil minister, Mohammed Al-Aleem, had told reporters on Thursday that OPEC was worried about the impact of an economic slowdown on oil prices.
"The price, for the time being, has been going a little bit down," he said.
"Within three weeks, it's been about 10 dollars. We have to see why, what the problem is, and whether it's going to continue at the same pace."
OPEC's meeting on Friday was an extraordinary get-together that was scheduled at the group's last official gathering on December 5 in Abu Dhabi.
There, OPEC decided against increasing production, insisting the market was well supplied and that high prices were caused by speculative activity, not supply and demand.
Ministers repeated this view in Vienna.
OPEC comprises Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
Iraq is the only member without an output quota owing to unrest in the country, while analysts say OPEC is in fact producing above its official ceiling by about 180,000 barrels a day.
OPEC: NO BOOST IN OIL OUTPUT
By George Jahn
February 1, 2008
VIENNA, Austria -- OPEC decided Friday against pumping more oil in a rebuff to Washington and a possible prelude to cuts as early as next month should the wounded U.S. economy sap demand for crude.
The decision arrived despite U.S. urgings -- backed by other major consumers -- for more oil on the market to cool prices and relieve inflationary pressures that have contributed to fears of a global economic downturn.
Oil prices dropped nearly $3 a barrel Friday after the U.S. said employers cut jobs in January, renewing worries that a possible U.S. recession that could eat into oil demand as OPEC ministers suggested.
The 13-nation Organization of Petroleum Exporting Countries insists that supplies were adequate and that speculators and geopolitical jitters -- not oil availability -- were setting prices.
OPEC said it is focused on near-term expectations: the likelihood of less demand as the Western hemisphere's heating season ends and before its summer driving season begins; the prospect of more barrels both from OPEC and non-OPEC nations, and fears that the market will shrivel if economic woes worsen.
"In view of the current situation, coupled with the projected economic slowdown . . . current OPEC production is sufficient to meet expected demand for the first quarter of the year," read a statement from OPEC following a meeting of its ministers.
That left questions open about the second quarter -- from April to June. While ministers avoided discussion of what OPEC would do during the next meeting on March 5, underlying sentiment for reducing output was apparent.
OPEC President Chakib Khelil told reporters that U.S. economic conditions "will probably have some impact on demand."
Even before Friday's meeting wound down, Iran's oil minister, Gholam Hussein Nozari, told reporters: "we think there should be cutting in production." And Venezuela, another OPEC price hawk, said it might swing behind Tehran.
President Bush led the lobbying for an output increase. The U.S. response to Friday's decision was measured.
"Everyone is fully aware that having a reliable and steady and predictable supply of oil is a benefit to the global economy," said White House spokesman Tony Fratto.
"We hope that they understand that their decisions on oil production have a real impact on the economy," he said.
Analysts suggested however, that OPEC could soon be pumping less oil, despite U.S. hopes.
"The likelihood that they will cut in March has just increased based on their rhetoric," said Stephen Schork, whose Schork Report looks at energy markets. "I believe the producers think that the U.S. economy is in recession and they are anticipating a further cutback in demand."
He and others also pointed to lagging U.S. refinery capacity -- an argument often used by OPEC in saying refiners cannot process the crude already on the market.
"In the United States last year, we had 30-35 unscheduled outages," said Schork, describing the breakdowns as a "sign of a system that is under mechanical duress."
Rick Chimblo, former head of exploration for Saudi Aramco, the Saudi national oil company, said the U.S. has not "done anything serious in terms of adding refining capacity . . . for nearly 30 years."
OPEC nations, in contrast, plan to expand refinery output by 6 million barrels a day within three years, not only giving them control over much of the world's crude oil but extending their influence over gasoline, diesel, heating oil, and jet fuel, Chimblo said.
Prices tumbled Friday despite the bullish implications of keeping production steady, after the U.S. government said employers cut jobs in January.
Light, sweet crude for March delivery fell $2.79 to $88.96 a barrel on the New York Mercantile Exchange.
Though current prices appear to have been factored in by most economies, a natural catastrophe, or a spike in Middle East tensions could again drive prices above $100 a barrel, as they did early this year.
That, in turn, could ultimately achieve the aim of the United States and other major consumers and drive down the cost of oil -- but only because their failing economies would not be able to afford as much crude.
Including Iraq, which is not under quotas, total OPEC output is estimated at about 31.5 million barrels a day -- about 40 percent of daily world demand, which is believed to be around 85.5 million barrels. The formal OPEC-12 output ceiling is around 30 million barrels a day.
This week's inventory report from the U.S. Energy Department's Energy Information Administration showed that crude and gasoline stocks rose 3.6 million barrels each during the week ended Jan. 25, buttressing OPEC arguments of adequate supply.
But analyst John Hall of John Hall Associates in London said the organization needed to look past its own immediate concerns of maintaining high oil prices.
"If OPEC is concerned about the chances of recession it needs to take whatever action it can take to bring the price down," he said. "All OPEC seems to be saying is, 'if there is a recession, demand will fall way down, and we will need to produce less.'"