OPEC now concerned about oil overproduction
The Organization of Petroleum Exporting Countries has deferred decision on any further crude oil production increases until its January meeting. The 11-nation organization met on the weekend to discuss changes to production levels might steady the oil price within the $22-$28/bbl target range.
VIENNA�The Organization of Petroleum Exporting Countries has deferred a decision on any further oil production increases until January.
At a weekend meeting, the 11-nation organization continued to wrestle with the question of how production adjustments might steady the oil price within the desired $22-$28/bbl range.
OPEC did not change its price band mechanism, which uses a "basket" of seven crude prices as a benchmark for making production adjustments to keep oil prices within the target range.
But several delegates, including Qatar's Minister of Energy and Industry Abdullah Bin Hamad Al-Attiyah, confirmed the mechanism would now be activated "manually" rather than automatically.
Al-Attiyah said after an informal meeting Sunday that OPEC would have to be "very careful" in its making its next move to modify output levels. "We have to be balanced," he stated. "Increases are easy, cuts are more difficult."
Saudi Arabia's Minister of Petroleum and Mineral Resources Ali I. Naimi indicated production modifications should be delayed when he said it "takes time to assess what has been done already." That sentiment was shared by many OPEC delegates.
Fears of an oil price collapse in the second quarter of 2001, when demand drops at the end of winter, appeared to be foremost on ministers' minds. Debate turned to the timing of a production cut.
That�coupled with the disputed effectiveness of OPEC's attempts this year to bring the oil price down below $30/bbl through output hikes�raised the prospect that the organization's price mechanism, which triggered a 500,000 b/d hike on Oct. 31, would be suspended altogether.
The International Energy Agency (IEA) has forecast global oil demand will drop from 78.4 million b/d currently to 77.7 million b/d in the first quarter and 75.6 million b/d in the second.
"Demand will rise more than 2 million b/d to an average 77.9 million b/d over the fourth and first quarters, during the northern hemisphere winter, before dropping a similar amount between the first and second quarters of next year," IEA said in its latest Monthly Oil Market Report.
After four production increases this year, OPEC continues to blame the world's persistently volatile oil prices on factors unrelated to crude supply, especially market speculation, and refinery and shipping bottlenecks.
The London-based Center for Global Energy Studies (CGES) argues that OPEC's "actual" production increases explain the negligible downward movement of the oil price this year.
On paper, OPEC has pumped an additional 3.7 million b/d on to the market this year, but CGES Senior Analyst Leo Drollas said this figure might be something closer to 1.5 million b/d.
"This [discrepancy] fits with the fact that we've had $32/bbl oil for so much of this year," he suggested.
Drollas calculates OPEC will have to slash its collective output by 1 million b/d starting in March to avert a price crash.
Meanwhile, Venezuela's Al�odr�ez Araque was named to succeed Rilwanu Lukman as OPEC's next secretary-general.
Rodriguez, Venezuela's Minister of Energy and Mines and the current OPEC president, will begin his 3-year term on Jan. 1. Algeria's Energy and Mines Minister Chakib Khelil becomes president.
The appointment of Rodriguez, the "architect" of OPEC's price band mechanism, came as a surprise to industry observers.
Leading contenders for the job were thought to have been Saudi Arabia's Suleiman Jasir Al-Herbish, Iraq's Abdul Amir Al-Anbari, and Iran's Tahmaseb Mazaheri Khorzani.