Hints of Shift at OPEC About Output
The New York Times
Published: May 09, 2008
As prices jumped to another record, a member of OPEC signaled on Friday for the first time in months that the oil cartel might increase its output to prick the price bubble.
The comments from Libya’s senior oil official, Shukri Ghanem, suggested a possible shift in OPEC’s position. Since the cartel’s last meeting in March, OPEC has argued that the market was not lacking in oil supplies and blamed speculators for driving up prices.
But in recent weeks, prices have come under renewed pressure because of a string of export disruptions from Nigeria. Prices have been above $100 since early February. Crude oil for June delivery closed up $2.27 at $125.96 a barrel in New York on Friday, after rising as high as $126.25 during the day.
Since OPEC last increased oil supplies in September, members of the Organization of the Petroleum Exporting Countries have argued that the higher prices had more to do with investment flows than with supply and demand.
The problem for OPEC is that prices have, at times, run counter to real market factors, analyst said. As the dollar continues to decline and the economy slows, investment funds have moved into commodities like oil or gold, which they consider safer and more profitable than stocks.
But the political cost of rising energy prices, especially in the United States, which is in the midst of a presidential election, is making OPEC’s position increasingly delicate. Economic growth in the United States has slowed and gasoline demand is set to fall this year for the first time since 1991.
The record high oil prices have pushed gasoline prices higher. Retail gasoline rose to a record on Friday of $3.67, according to AAA, the automobile club.
The pressure is also rising in Washington to blame OPEC for the high prices. Last week, Senator Frank R. Lautenberg, a Democrat of New Jersey, introduced legislation that would compel the government to act against OPEC’s “anti-competitive practices and illegal export quotas on oil.” While the bill has little chance of passing, it highlights Washington’s growing exasperation with OPEC’s conduct. President Bush is scheduled to tour the Middle East next week, and the question is bound to come up during his stop in Saudi Arabia.
So far, producers have been pretty inflexible. OPEC, which accounts for 40 percent of the world’s oil exports, is not scheduled to meet until September. At its last gathering in March, OPEC leaders ignored calls from President Bush and other industrialized leaders to bolster production, opting to keep their output steady.
At a meeting of oil producers and suppliers in Rome last month, many OPEC delegates, including Saudi Arabia’s oil minister, Ali Al-Naimi, said there were not enough buyers to justify an increase in production. But analysts say some producers are becoming increasingly uneasy with the run-away prices.
“We would consider among other options the possibility of increasing output as a way to ensure market stability,” Mr. Ghanem, the Libyan official, was quoted by Bloomberg News as saying Friday. “I expect a meeting before September. I am not calling for one, but I would support one.”
Another OPEC delegate, quoted by Reuters, also raised the prospect of an early OPEC consultation to increase production before the next meeting. The delegate, who was not identified, said OPEC would have to increase its production level by more than 500,000 barrels a day to have a meaningful impact on prices.
“They are playing with fire,” an analyst at Lehman Brothers, Adam Robinson, said. “Every time the price goes up, and we break a new psychological mark, they risk killing the goose that lays the golden egg. Their biggest fear is triggering something they can’t control.”
There is no suggestion at this point that the cartel will be meeting soon. On Thursday, the organization’s secretary-general, Abdalla Salem El-Badri, issued a statement from the group’s headquarters in Vienna, saying there was “clearly no shortage” of oil in the market.
“In recent month, oil prices have become increasingly volatile, mainly driven by financial market developments and the increased flow of speculative funds into oil futures,” the statement said.
But he left the door open for OPEC to step in. “The organization stands ready to act if the market shows a need for any further measures,” he said.
Separately, Brazil repeated its intention to one day join the oil cartel. In an interview with a German weekly, Der Spiegel, President Luiz Inacio Lula da Silva said that his country was gearing up to be a major oil exporter after discovering huge offshore oil fields.
“We want to join OPEC,” Mr. Lula da Silva said, “and try to make oil cheaper."
Last year, OPEC’s membership rose to 13 as Angola and Ecuador joined the group. Indonesia, which joined in 1962, two years after the group was founded in Baghdad, signaled it might leave the cartel after becoming a net oil importer.
© The New York Times. All rights reserved. This article originally appeared in The New York Times.
