The 11 member states of the Organization of Petroleum Exporting Countries last week put their names to a middle-way agreement that will raise collective output of crude by 800,000 b/d starting next month, although this hike is unlikely to do more than arrest the spiraling oil price in the short term.
In advance of the formal announcement of the deal in Vienna last week, Qatar's Minister of Energy and Industry, Abdullah bin Hamad al-Attiyah, confirmed that the increase would take effect on Oct. 1, although he added that a time limit on the hike was "not discussed."
During the less than 4-hr meeting, the OPEC heads of delegation also decided to next convene in the Austrian capital on Nov. 12 to "check" the impact of this latest production increase.
With the additional output, Al-Attiyah stressed, the ball is now in the court of the world's industrialized countries, which now have to "check their tax systems." He said OPEC blames taxation and market speculation for the soaring oil prices of the last 18 months, adding that OPEC had "done all that [it] canellipseWe cannot solve the whole problem."
OPEC's price-band mechanism-the device that is designed to act as a production counterweight when a basket price of seven OPEC-member crudes remains above $28/bbl for 20 consecutive days-is, according to Al-Attiyah, nonetheless "very much alive."
The extra 800,000 b/d comes on top of the organization's 500,000 b/d output hike agreed to 3 months ago.
According to the latest production data, OPEC officially pumped out 25.7 million b/d in July, of which Saudi Arabia, the organization's largest producer, contributed 8.4 million b/d (see table). OPEC estimated current group production-excluding Iraq-at 25.4 million b/d; the 800,000 b/d hike would bring the "OPEC 10" output to 26.2 million b/d.
Ali al-Naimi, the country's oil minister, was understood to be "happy" with the new OPEC agreement, although going into Sunday's meeting, Saudi Arabia was said to be looking for an increase closer to 1 million b/d.
Oil price realities
OPEC Pres. Alí Rodríguez Araque, in his opening remarks to the 111th OPEC conference, struck out against the widely held view-laid at OPEC's door-that oil prices had increased three-fold over the last 18 months.
"It is misleading to say that prices have trebled [over this period]," stated Rodríguez. "It is far a more accurate reflection of the situation to say that prices have risen to their present levels from a decade-long average of almost $18/bbl."
Rodríguez echoed Al-Attiyah's earlier suggestion that heavy-handed taxation policies in oil-consuming counties had played their part in inflaming overheated oil prices. "High levels of taxation on petroleum products in most consuming countries are greatly amplifying the effects of rises in the price of crude," he stated, calling for the governments of industrialized nations to cut taxes "in the interest of market stability."
The OPEC president also pointed the finger at market speculators as a "key factor that has distorted realities and artificially influenced prices far beyond what the fundamentals indicate."
"OPEC cares very much about sustainable order and stability in the oil market, with fair and reasonable prices for consumers, and is trying very hard to bring this about," said Rodríguez, "but this not so easy in such a complex and speculative environment as the petroleum industry."
Is it enough?
The question of whether OPEC's output hike will be sufficient to bring oil prices down to the level desired over the longer run-to $25-29/bbl-is still up for debate, with some industry observers saying it does little more than "legitimize" current overproduction from OPEC countries.
"[OPEC] is overproducing by over 700,000 b/d," said Leo Drollas, senior analyst at the London-based Centre for Global Energy Studies. "It is just a little offset, a legitimization for what they have overproduced."
Drollas accused OPEC of "failing to manage" its output level proactively and said oil prices would continue to be volatile as long as the organization insists on "reacting, not leading."
The market, Drollas reminded, was anticipating an output increase in the region of 750,000 b/d. Despite the fact that OPEC's decision to boost output was timed to get a jump on the markets-the announcement coming on a day when the world's commodity markets were closed-in London Sept. 11, Brent crude edged only slightly downward on the International Petroleum Exchange to $32.28/bbl after closing Sept. 8 at $32.78.
Because of current overproduction from the OPEC states, "plus some leakage," this latest hike in production, Drollas suggested, equates to only 50,000 b/d in real terms. Other analysts put the number of "new" barrels being pumped into the market much higher, closer to 325,000 b/d.
To force the oil price down toward the desired level of $28-29/bbl, he said, OPEC would have to add roughly 1.2 million b/d to its output. Saudi Arabia is the only OPEC member with sufficient additional capacity to do so, but the Middle East state, Drollas suggested, does not "want to be seen doing it alone, acting as sole producer."
The release Sept. 11 of the International Energy Agency's September oil report, he added, might help to ease oil prices by $2-3 in the short term.
