OPEC impotent when it comes to oil prices
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Cartel set to boost production by 500,000 bpd
The Daily Star Middle East | Michael Glackin
Beirut
Analysis
There's a danger when you're in a job too long you start repeating yourself. So forgive me if I mention the fact that earlier this year I wrote that OPEC's attempts to cool fast-rising oil prices had as much impact on the market as breaking wind over a field instead of using fertilizer. Well guess what? OPEC is set to break wind again when it meets in Vienna on Monday, promising to add 500,000 barrels to the market to offset price pressures in the wake of Katrina.
The cartel's meeting will take place after a week which saw black gold fall across the board, closing a dollar down in New York yesterday at $63.75. In London Brent finished the day at $62.21 down $1.45.
It may be a coincidence but real gold enjoyed a very good week on the market, hitting a 17-year high in London and New York yesterday. Are speculators hedging their bets? Of course, but rest assured, there is still life left in the current oil-price cycle so don't be suprised to see it spike again in the coming weeks.
The immediate catalyst for Friday's fall was OPEC's report that the price of oil was at last having a corrective effect on demand. OPEC now believes global demand growth will rise by 1.7 percent this year, down from its previous estimate of 1.9 percent, to 83.5 million barrels per day. The cartel also believes 2006 demand will now only increase by 1.8 percent, or 1.52 million barrels a day, 100,000 barrels less than previously forecast.
OPEC's optimism appeared confirmed by China's announcement that its oil imports had fallen during August compared with the previous year.
As someone who has consistently said real market demand would eventually correct the current price hike I'm delighted. But price pressure, though easing, is still a ways short of disappearing so no one should be uncorking the champagne just yet.
As the Northern Hemisphere heads into winter, concerns about the price of heating oil will keep the market bullish. Increased amounts of Saudi Arabian crude which the world is struggling to refine into heating oil and gasoline, doesn't offer a cure, it merely puts a band-aid on the price.
The International Energy Agency this week revealed the lack of refining capacity in Britain, France and Germany has resulted in them paying about 10 percent more than the U.S. for oil this year. The U.S. has slightly better refining capacity than Europe, although post-Katrina, four important U.S. oil refineries remain shut.
Despondency surrounding limited refining has reached the point where Richard Branson, who runs U.K.-based airline Virgin Atlantic - and perhaps mindful that a large chunk of America's airline industry is in bankruptcy - is considering putting some of his substantial spare cash into building an oil refinery.
On top of all that, let's not forget that OPEC has increased production half a dozen times this year, and is now unofficially pumping something in the region of 30.5 million barrels of crude a day. And in case you haven't noticed oil is still trading at double the price it was less than two years ago.
It's of course good news that demand is now starting to react to prices, but I stand by my prediction that $80 a barrel will mark the end of this price cycle. So see you in around $15 time.
Cartel set to boost production by 500,000 bpd
The Daily Star Middle East | Michael Glackin
Beirut
Analysis
There's a danger when you're in a job too long you start repeating yourself. So forgive me if I mention the fact that earlier this year I wrote that OPEC's attempts to cool fast-rising oil prices had as much impact on the market as breaking wind over a field instead of using fertilizer. Well guess what? OPEC is set to break wind again when it meets in Vienna on Monday, promising to add 500,000 barrels to the market to offset price pressures in the wake of Katrina.
The cartel's meeting will take place after a week which saw black gold fall across the board, closing a dollar down in New York yesterday at $63.75. In London Brent finished the day at $62.21 down $1.45.
It may be a coincidence but real gold enjoyed a very good week on the market, hitting a 17-year high in London and New York yesterday. Are speculators hedging their bets? Of course, but rest assured, there is still life left in the current oil-price cycle so don't be suprised to see it spike again in the coming weeks.
The immediate catalyst for Friday's fall was OPEC's report that the price of oil was at last having a corrective effect on demand. OPEC now believes global demand growth will rise by 1.7 percent this year, down from its previous estimate of 1.9 percent, to 83.5 million barrels per day. The cartel also believes 2006 demand will now only increase by 1.8 percent, or 1.52 million barrels a day, 100,000 barrels less than previously forecast.
OPEC's optimism appeared confirmed by China's announcement that its oil imports had fallen during August compared with the previous year.
As someone who has consistently said real market demand would eventually correct the current price hike I'm delighted. But price pressure, though easing, is still a ways short of disappearing so no one should be uncorking the champagne just yet.
As the Northern Hemisphere heads into winter, concerns about the price of heating oil will keep the market bullish. Increased amounts of Saudi Arabian crude which the world is struggling to refine into heating oil and gasoline, doesn't offer a cure, it merely puts a band-aid on the price.
The International Energy Agency this week revealed the lack of refining capacity in Britain, France and Germany has resulted in them paying about 10 percent more than the U.S. for oil this year. The U.S. has slightly better refining capacity than Europe, although post-Katrina, four important U.S. oil refineries remain shut.
Despondency surrounding limited refining has reached the point where Richard Branson, who runs U.K.-based airline Virgin Atlantic - and perhaps mindful that a large chunk of America's airline industry is in bankruptcy - is considering putting some of his substantial spare cash into building an oil refinery.
On top of all that, let's not forget that OPEC has increased production half a dozen times this year, and is now unofficially pumping something in the region of 30.5 million barrels of crude a day. And in case you haven't noticed oil is still trading at double the price it was less than two years ago.
It's of course good news that demand is now starting to react to prices, but I stand by my prediction that $80 a barrel will mark the end of this price cycle. So see you in around $15 time.
posted by Marcel at 5:24 AM
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