Opec, the oil producer’s cartel, was on Tuesday set to maintain its current official production limits in spite of record high prices and calls from consuming countries for an increase in output.
Chakib Khelil, the cartel’s president, said Opec had “no plans to raise production” at its meeting in Vienna which starts on Wednesday.
Shokri Ghanem, Libya’s oil minister
“The world has changed. The dollar is down, $100 is not what it used to be”
Other Opec ministers echoed his statement, adding that high prices were the result of speculation and the falling dollar, not a shortage of oil.
The price of oil hit a high of $103.95 a barrel this week as the dollar plunged to fresh lows against the euro and a basket of leading currencies.
On some measures, oil closed higher in inflation-adjusted terms than its previous peak in April 1980 – the height of the second great oil shock. Then, oil prices surged to the equivalent today of $103.76 a barrel.
Robert Laughlin of MF Global in London said: “[An] unchanged scenario with a May meeting is my favoured outcome.”
As he arrived for the Opec meeting, Shokri Ghanem, Libya’s oil minister, said: “The world has changed. The dollar is down, $100 is not what it used to be.”
Oil and the dollar have tended to move in opposite directions because commodities are seen by some investors as a haven from weakness in the US. On Tuesday, West Texas Intermediate crude oil was 3 cents up at $102.48 a barrel.
Some Opec members fear that current oil prices will damage the world economy. However, with energy demand set to weaken at the end of the northern hemisphere winter, no member country is pushing for a production increase.
Iran and Venezuela are pushing for an output cut later this year to support the price when demand is expected to dip.
David Kirsch, of the Washington-based consultants PFC Energy, said a cut in official output seemed unlikely because it would be politically damaging to defend openly $100 a barrel.
Instead, Opec could agree to covert cuts. Saudi Arabia, the biggest oil producer, last month produced 9.2m barrels per day – 300,000 b/d above its official Opec limit. The kingdom could return to that limit in coming weeks.
Ali Naimi, Saudi Arabia’s oil minister, at the weekend told Petrostrategies that he was going to the meeting with an “open mind” but said producing countries, and Opec in particular, should not be blamed for high prices.
He said “a vision of tightness in the market, which is unfounded”, had created an opportunity for hedge funds and other financial investors to make money. He added: “It is driving up the price, it is creating paper demand and influencing the price.”
He also suggested that there was now a floor of $60-$70 a barrel “below which the [oil] price cannot fall,” because that was the cost of alternative sources of supply such as biofuels, even including subsidies, or oil from Canada’s tar sands.
If Opec does agree to leave output unchanged, some members are likely to insist on an extraordinary meeting as early as next month to monitor the market.
