The oil ministers of Mexico, Saudi Arabia, and Venezuela agreed to maintain their accord on oil production cutbacks until the end of March 2000, following a meeting in Caracas on Aug. 28.
The output restraint of these countries and others has prompted a long-awaited rebound in world oil prices in recent months, and the ministers are clearly hesitant to respond too quickly to the price recovery by raising production, lest that response cause the market to swing in the opposite direction.
Oil markets around the world responded positively to the reaffirmation of reduced output levels. In New York trading on Aug. 30, light sweet crude for October delivery rose 74?/bbl to settle at $22.01/bbl, while the November contract stood at $21.98, up 72?. Crude oil also shot up to a new high of $21.25/bbl on the Singapore exchange, while a national holiday in the U.K. kept London markets closed that day.
When London markets opened the following day, Brent futures followed the upward trend set by the New York and Singapore markets, settling at $21.33, a rise of 57? from the Aug. 27 close.
Cuts reaffirmed
Just before the Caracas meeting, Venezuela's Energy and Mines Minister Alí Rodríguez Araque had stressed, "...It still is very early to take different decisions than those that were taken in March. One has to observe the market (first)."
The other two ministers apparently agreed. Following their meeting, Rodríguez, Saudi Arabia's Petroleum and Mineral Resources Minister Ali I. Naimi, and Mexico's Energy Minister Luis T?llez released a joint statement saying they were satisfied with "the stability that has gradually returned to the oil marketellipse."
After reviewing the state of the market, the ministers say they recognize that a high degree of compliance with the agreed production cuts is the main factor in the industry's recent recovery. And they agree that sustaining the newfound price stability will require continuance of the cutbacks agreement until the end of March 2000. This, they say, should reduce world oil inventories and allow sustained growth in supply and demand.
The three officials also said they are "convinced that OPEC members and other oil exporters will maintain the output agreement until inventories return to normal levels.
"Once consumption effectively recovers, a new equilibrium of supply and demand will sustain a stable level of prices consistent with a healthy climate in the world economy."
Following the summit, Naimi told reporters in Caracas, "The cooperation among the three countries is a refreshing matter. I can assure you that we understand the responsibility that faces us in the stability of the world oil market. What is ideal is a price that rewards the producer and assures the consumer of a secure supply of oil."
Tellez said maintaining the production cuts is "fundamental." And Rodríguez asserted that it is still too early to reach conclusions regarding oil prices, given the unpredictability of weather and demand.
"Also, there is the factor of future sales, which is a kind of mirage and which can push prices upwards as well as downwards," he noted.
A permanent monitoring of the market should be implemented, said Rodriguez Araque, "to follow the behavior of the markets and, particularly, the levels of inventories in the main consuming countries."
He said that, during the ministers' discussions, he reiterated his idea of instituting a price band as a way of determining oil supply levels for key oil exporting countries.
"The mechanism of bands is an idea that we have been analyzing," he said. "It is no more than an idea that we have presented to OPEC and non-OPEC producers."
His proposal involves fixing floor and ceiling price levels "so that the laws of the market-supply and demand-can move...In this way, producers and consumers can plan their economies, covered from the fear that (prices) increase too much or drop too much, with the perturbing factors that brings."
