WSJ.com - Energy
WSJ.com - Energy
Why OPEC's Over a Barrel
By MICHAEL WILLIAMS
Staff Reporter of THE WALL STREET JOURNAL
September 17, 2005; Page A2
When the czars of OPEC meet Monday in Vienna, they are likely to trumpet an increase in oil output to prove they're pulling out the stops to tame high prices.
That announcement -- an expected 500,000 barrel-a-day rise -- will be a bit of smoke and mirrors. It won't really add any oil to the market.
The 11 members of the Organization of Petroleum Exporting Countries are already producing nearly all they can. The only one with extra pumping capacity is Saudi Arabia, which for months has been telling the market it will sell every drop it can produce. But customers -- the companies who turn crude into gasoline and other fuels -- aren't buying all that oil, as it's the wrong kind for their refineries anyway.
So the two-day meeting probably won't spell relief for drivers fuming at the pump.
Behind the scenes, though, oil ministers will be discussing bigger issues that will affect us all longer term.
OPEC's goal is to get the maximum possible price for its oil. The trick is to do that without killing the global economy and causing a collapse in oil demand. To OPEC's surprise, the economy hasn't been hit too hard by the doubling of oil prices in the past two years, to $63 a barrel Friday.
No decision is imminent, but one topic in OPEC circles is whether the cartel should boost its unofficial minimum price target -- which now appears to be about $45 a barrel. Some OPEC members now think the world can support prices well above $50 a barrel without harming growth. If the cartel does boost its target, it's more likely Americans will have to get used to living with gasoline above $3 a gallon.
A related and even more important issue is how much new oil-pumping capacity the cartel's members should add. Build too much, and prices could suffer. Build too little, and prices will skyrocket out of control.
Saudi Arabia, the No. 1 exporter, is spending heavily to raise its capacity by 1.5 million barrels a day in coming years, a 14% increase. But the Saudis alone probably can't keep ahead of soaring global demand, and the two other OPEC members with the greatest potential are less likely to step up to the plate. The first, Iraq, is a mess. The second, Iran, faces political turmoil that makes a crash investment program unlikely.
There is much talk these days about whether the world will run out of oil. Actually, there seems to be plenty of oil in the ground -- mainly in OPEC states, home to 77% of world reserves. The immediate problem is less apocalyptic but still serious: If OPEC doesn't add enough new wells, its output won't stay ahead of demand and supplies will stay tight. Oil prices, an afterthought for a generation, could plague us for years to come.
Write to Michael Williams at michael.williams@wsj.com
Why OPEC's Over a Barrel
By MICHAEL WILLIAMS
Staff Reporter of THE WALL STREET JOURNAL
September 17, 2005; Page A2
When the czars of OPEC meet Monday in Vienna, they are likely to trumpet an increase in oil output to prove they're pulling out the stops to tame high prices.
That announcement -- an expected 500,000 barrel-a-day rise -- will be a bit of smoke and mirrors. It won't really add any oil to the market.
The 11 members of the Organization of Petroleum Exporting Countries are already producing nearly all they can. The only one with extra pumping capacity is Saudi Arabia, which for months has been telling the market it will sell every drop it can produce. But customers -- the companies who turn crude into gasoline and other fuels -- aren't buying all that oil, as it's the wrong kind for their refineries anyway.
So the two-day meeting probably won't spell relief for drivers fuming at the pump.
Behind the scenes, though, oil ministers will be discussing bigger issues that will affect us all longer term.
OPEC's goal is to get the maximum possible price for its oil. The trick is to do that without killing the global economy and causing a collapse in oil demand. To OPEC's surprise, the economy hasn't been hit too hard by the doubling of oil prices in the past two years, to $63 a barrel Friday.
No decision is imminent, but one topic in OPEC circles is whether the cartel should boost its unofficial minimum price target -- which now appears to be about $45 a barrel. Some OPEC members now think the world can support prices well above $50 a barrel without harming growth. If the cartel does boost its target, it's more likely Americans will have to get used to living with gasoline above $3 a gallon.
A related and even more important issue is how much new oil-pumping capacity the cartel's members should add. Build too much, and prices could suffer. Build too little, and prices will skyrocket out of control.
Saudi Arabia, the No. 1 exporter, is spending heavily to raise its capacity by 1.5 million barrels a day in coming years, a 14% increase. But the Saudis alone probably can't keep ahead of soaring global demand, and the two other OPEC members with the greatest potential are less likely to step up to the plate. The first, Iraq, is a mess. The second, Iran, faces political turmoil that makes a crash investment program unlikely.
There is much talk these days about whether the world will run out of oil. Actually, there seems to be plenty of oil in the ground -- mainly in OPEC states, home to 77% of world reserves. The immediate problem is less apocalyptic but still serious: If OPEC doesn't add enough new wells, its output won't stay ahead of demand and supplies will stay tight. Oil prices, an afterthought for a generation, could plague us for years to come.
Write to Michael Williams at michael.williams@wsj.com
posted by Marcel at 1:32 PM
0 Comments:
Post a Comment
<< Home