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OPEC sends mixed signals on
production
By Michael Lelyveld
BOSTON - Less than a month after agreeing to
raise oil output by 6.5 percent, the Organization of
Petroleum Exporting Countries (OPEC) is already talking
this week about possible cuts.
In a series of
confusing signals over the past few days, the president
of the OPEC oil cartel, Abdullah bin Hamad al-Attiyah,
said that the 11-nation group could speed up production
or decide to reduce it in March.
Speaking in Abu
Dhabi in the United Arab Emirates on February 1,
al-Attiyah said that OPEC members could raise oil
supplies further if needed, although there seems to be
no worldwide shortage, the Qatar News Agency reported.
Then on February 3, al-Attiyah said that OPEC
could move in the opposite direction at a meeting on
March 11 to lower production, Gulf News reported.
Analysts say that the coming of spring weather normally
brings a drop in oil demand, while production in
troubled Venezuela is gradually rising as a general
strike there winds down. In such an uncertain
environment, OPEC is worried that prices could plunge.
Al-Attiyah, who is the Qatari energy minister,
said, "If we see any sign of a fall in oil prices, we
will correct the situation." Some experts have warned
that oil prices could slip suddenly to below $20 per
barrel from more than $30 now.
Two weeks ago in
Doha, al-Attiyah again gave a contradictory signal,
saying that OPEC could raise output at its scheduled
March meeting. At the time, he complained that the
market had ignored the cartel's decision on January 12
to raise production by 1.5 million barrels per day,
leaving world prices too high. At the time, he said,
"All options are open." Since then, it appears that no
option has been closed.
The reason is that both
OPEC and the market are swamped with conflicting
signals. Among them are a war with Iraq that may or may
not happen, the strike in Venezuela that may be broken,
and a dip in seasonal demand at a time when many
countries are cramming to fill their strategic petroleum
reserves. The combination of factors has made the market
perilous to predict.
Analysts are also coming up
with new combinations of possible outcomes within each
variable, further complicating their forecasts. Most
have to do with the dangers of Iraq.
This week,
the Washington-based consulting firm PFC Energy outlined
three possible outcomes for Iraqi oil production if a
conflict breaks out in late February or March.
If the fighting ends quickly with no damage to
the country's oil fields, Iraq could resume its recent
production level of 2.5 million barrels of oil per day
by May or June in the best case, PFC said. The "baseline
case" includes some minor damage to oil facilities with
recovery to prewar levels in November or December. But
the worst case includes extensive damage, perhaps caused
by mining of the oil fields, leaving Iraq with only 1
million barrels per day at the end of the year.
Others see the possibility of even worse
consequences. Dow Jones News wires quoted Mark Baxter,
director of the Maguire Energy Institute in Houston,
Texas, as saying that if Iraq attacks Kuwait, it would
take a combined 5 million to 6 million barrels per day
off the market, or 7 percent of world output. The range
of possible outcomes makes any OPEC decision a matter of
guesswork. In the past week, published forecasts have
pegged future oil prices from as little as $10 to more
than $80 per barrel.
The situation has also
highlighted the problems for producing countries like
Russia, which are highly dependent on oil income and
less flexible than some OPEC members like Saudi Arabia.
The output from Russia's Siberian oil fields cannot be
easily turned on and off like those in the Persian Gulf.
Russian Finance Minister Aleksei Kudrin said the
country's budget this year is based on the assumption
that oil prices will average $21.50 per barrel, Interfax
reported. On February 1, Kudrin told reporters in
Khanty-Mansiisk that he does not expect prices to fall
sharply, but he did not explain his reasons for
confidence.
Mikhail Khodorkovskii, president of
Russia's giant Yukos oil company, disagrees, arguing
last month that prices will soon sink to below $20 per
barrel. Khodorkovskii seems more worried about the
prospect of low prices than he was a year ago, when
Russian oil companies were ready to take on OPEC in a
price war for world market share. At the end of 2001,
oil was already trading below $20 per barrel and was
fighting off threats to slide as low as $10. But
Moscow's priority was to increase production, despite
the low returns. It largely succeeded. Russia's oil
output rose 9 percent last year.
One reason for
Russia's greater worry over low oil prices is that it
has yet to deal with the consequences of its success. In
January, Russian oil output rose to a record post-Soviet
high of 8.07 million barrels per day, but a backlog of
oil on the domestic market is also rising toward record
levels.
This week, LUKoil vice president Leonid
Fedun warned that bottlenecks and conflicts between
private Russian oil companies and the state-controlled
pipeline monopoly Transneft will trap up to 131 million
barrels of oil inside Russia by November. The
Moscow-based United Financial Group also estimated that
Russian domestic oil inventories have already risen 14
percent to 165 million barrels in the past four months
as prices plummet.
But Russia may also be less
confident about weathering the worries over oil prices
this time because it has far less control over events in
the market than at this time last year. The outcome of
real war is even less certain than a price war, and
Russia's companies have already invested to produce even
more oil.
Copyright (c) 2002, RFE/RL Inc.
Reprinted with the permission of Radio Free Europe/Radio
Liberty, 1201 Connecticut Ave NW, Washington DC
20036
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