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Ahead of key meeting, some wonder if OPEC still relevant
Matt Moore Associated Press Business Writer
As members of OPEC ready for a key meeting on whether to adjust oil prices, some petroleum companies and analysts are wondering if the cartel is becoming irrelevant in the modern, global economy.
The 11-member cartel meets Sept. 15 to decide whether to increase its production band and prices, or lower them, amid wildly oscillating oil markets that have been hampered by fears about Hurricane Ivan, repeated attacks on oil facilities in Iraq and instability in Venezuela.
“Production is already over quota and over the likely higher quota. The prices are already over the higher price band,” Adam Sieminski, an oil price strategist with Deutsche Bank in London, told The Associated Press. “In theory, it doesn’t really matter very much.”
His comments came after a senior delegate told Dow Jones Newswires Sept. 13 that there is a real possibility the Organization of the Petroleum Exporting Countries could raise its production by as much as 2 million barrels a day, or more than 7 percent, when it meets Wednesday.
That decision, if approved, would increase OPEC’s self-imposed output limit for all its members, except Iraq, from 26 million barrels a day to 28 million barrels.
Doing so would bring the cartel in line with actual output, which is currently more than 27.4 million barrels.
The delegate added that that the cartel isn’t likely to change its current price band of US$22-US$28 a barrel. Issue will be the market Qatar’s oil minister, Abdullah bin Hamad, said raising the cartel’s ceiling on output won’t be the main topic of discussion.
“The issue with the oil is the market,” bin Hamad said. Raising the price band to US$30 a barrel, he added, was “a good level for consumers and producers.”
The group’s members look at higher prices with a sense of satisfaction. After all, rising oil prices means more money for their coffers and improved economic guidance back home.
“That is a hard sell,” Sieminski said. “The countries have a lot of money and they are getting used to high oil prices,” he said, adding that members like Saudi Arabia, Algeria and Libya, which no longer has sanctions to contend with, are adding to their production capacity.
Countries that aren’t members, like Russia and Norway, benefit as well from the higher prices, which peaked at US$49.40 on Aug. 20, but have since fallen off.
Russia and Norway, the second and third-biggest oil exporters, aren’t beholden to OPEC, which strictly regulates price and supply among its members, but gain from whatever price band is set and, oil officials there say, can adjust their output to correspond with the market’s dictates.
“Were it not for OPEC exerting influence on the market ... it’s very likely the price would trade down,” John Waterlow, an analyst with Edinburgh, Scotland-based Wood Mackenzie, told the AP. “People would be tempted to compete to cut down the prices to the cost of supply.” Spare capacity low Total SA’s chief executive, Thierry Desmarest, in an interview with the Financial Times published Sept. 13, said OPEC should let oil companies have more access in a bid to bolster the production-capacity shortage.
It’s a sentiment that’s being eyed as prices remain so high.
“(OPEC) is a cartel that works, they do withhold production from the market,” said Sieminski. “Spare capacity is very low. It is why oil is more than US$40.”
Sieminski said most oil companies keep several years of production reserves while OPEC countries have between 40 and 50 years worth.
“Everyone is afraid of another accident or sabotage. What Desmarest said in the interview with the FT is what he said in Paris and London,” the analyst said. “His message to OPEC is that they need to let the companies come in there and develop some spare capacity ... and productive capacity.”
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