High oil price leaves Opec with headache
FT.com / International Economy / Oil - High oil price leaves Opec with headache
By Carola Hoyos in Baton Rouge, Louisiana
Published: September 11 2005 17:17 | Last updated: September 11 2005 17:17
If anyone should be happy about high oil prices it is the Organisation of the Petroleum Exporting Countries, the cartel that supplies the world with nearly 40 per cent of its oil. Or so one would think.
But concerns that oil prices are too high will top the agenda when Opec oil ministers meet in Vienna a week from Monday.
“I don't think they can do very much at this meeting, except watch and worry,” said Jamal Qureshi, analyst at PFC Energy, the Washington-based consultants.
In fact Opec is already worrying because demand for petrol, and therefore also oil, is one of the first victims in any economic slowdown. This is why Hurricane Katrina's impact on the health of the world economy has dominated the cartel's discussions in the past week.
The International Energy Agency said last week that record oil prices had slowed energy use worldwide, with oil consumption in 2005 now forecast to increase at less than half the pace of last year.
That is a troubling development for a group of countries that relies so heavily on oil for national budgets. Even though most economists expect oil prices to stay above $60 for the foreseeable future, Opec worries that a drop in demand and the extra oil expected to come to the market from Nigeria and Azerbaijan next year could cause prices to fall. There is little Opec can do, as Rafael Ramirez, Venezuela's oil minister, said last week. “More important than having crude is having oil products,” he said. But Opec is an oil, not a petrol, cartel.
“The fundamentals are being totally driven by the US refining bottleneck and the US deficit in gasoline,” said Mr Qureshi. “Opec is not nearly as relevant in these kinds of circumstances.”
In fact the flood damage that shut several refiners in the US Gulf is hurting producers such as Saudi Arabia, Venezuela and, in particular, Mexico, a big producer close to Opec but not a member.
The severe damage at four refineries east of New Orleans has already forced Mexico and Venezuela to turn their tankers around.
Alternative customers are difficult to find as their oil is heavy and the market is well supplied, in part because Washington and several European countries are releasing such supplies from their emergency stockpiles.
So until the refinery bottlenecks are resolved which could take months, according to the US Department of Energy there is little anyone can do about the oil price. That is deeply troubling to a group that until recently had achieved a balance in keeping the oil price high but not so high that consumers were prompted to conserve energy or seek alternatives.
Opec can ill afford a repeat of the 1998 Asian financial crisis when oil prices dropped to $10 a barrel. But unlike 1998, when the cartel removed excess oil from world markets by enforcing a strict production quota, there is little it can do this time.
By Carola Hoyos in Baton Rouge, Louisiana
Published: September 11 2005 17:17 | Last updated: September 11 2005 17:17
If anyone should be happy about high oil prices it is the Organisation of the Petroleum Exporting Countries, the cartel that supplies the world with nearly 40 per cent of its oil. Or so one would think.
But concerns that oil prices are too high will top the agenda when Opec oil ministers meet in Vienna a week from Monday.
“I don't think they can do very much at this meeting, except watch and worry,” said Jamal Qureshi, analyst at PFC Energy, the Washington-based consultants.
In fact Opec is already worrying because demand for petrol, and therefore also oil, is one of the first victims in any economic slowdown. This is why Hurricane Katrina's impact on the health of the world economy has dominated the cartel's discussions in the past week.
The International Energy Agency said last week that record oil prices had slowed energy use worldwide, with oil consumption in 2005 now forecast to increase at less than half the pace of last year.
That is a troubling development for a group of countries that relies so heavily on oil for national budgets. Even though most economists expect oil prices to stay above $60 for the foreseeable future, Opec worries that a drop in demand and the extra oil expected to come to the market from Nigeria and Azerbaijan next year could cause prices to fall. There is little Opec can do, as Rafael Ramirez, Venezuela's oil minister, said last week. “More important than having crude is having oil products,” he said. But Opec is an oil, not a petrol, cartel.
“The fundamentals are being totally driven by the US refining bottleneck and the US deficit in gasoline,” said Mr Qureshi. “Opec is not nearly as relevant in these kinds of circumstances.”
In fact the flood damage that shut several refiners in the US Gulf is hurting producers such as Saudi Arabia, Venezuela and, in particular, Mexico, a big producer close to Opec but not a member.
The severe damage at four refineries east of New Orleans has already forced Mexico and Venezuela to turn their tankers around.
Alternative customers are difficult to find as their oil is heavy and the market is well supplied, in part because Washington and several European countries are releasing such supplies from their emergency stockpiles.
So until the refinery bottlenecks are resolved which could take months, according to the US Department of Energy there is little anyone can do about the oil price. That is deeply troubling to a group that until recently had achieved a balance in keeping the oil price high but not so high that consumers were prompted to conserve energy or seek alternatives.
Opec can ill afford a repeat of the 1998 Asian financial crisis when oil prices dropped to $10 a barrel. But unlike 1998, when the cartel removed excess oil from world markets by enforcing a strict production quota, there is little it can do this time.
posted by Marcel at 2:52 PM
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