London (UPI) Dec 21, 2010
The Organization of Petroleum Exporting Countries is courting risks for world economic recovery by not doing enough to maintain a better balance between oil price and production, London's Center for Global Energy Studies warned in its Monthly Oil Report.
CGES published its analysis of OPEC officials' conduct at the recently ended ministerial conference of the producer group in Ecuador.
It said oil prices would rise in 2011 unless OPEC changes its outlook.
The talks gave a "clear indication" that OPEC members are quite happy to see oil prices at $90 a barrel and even higher, CGES said. "Suggestions that rising oil prices might derail economic recovery and that the world needs more oil from OPEC were dismissed with assertions that the market remained 'well supplied' and that prices were rising because the value of the U.S. dollar was falling against other major currencies."
In fact, the think tank said, the recent oil price hike had little to do with the dollar and more to do with oil supplies being tight.
OPEC met in Ecuador as crude oil prices touched $90 a barrel.
Instead of taking measures to bring prices down to the $70-$80 range, OPEC leaders claimed even $90 a barrel wasn't good enough, as it hurt producers.
CGES criticized OPEC's approach to market strategies. "While OPEC looks to developing economies in the East for future demand growth, it bases its assessment of whether or not the market is in balance on historical inventory levels for the developed economies of the OECD. This gives a false picture of the state of the global oil market," it said.
It said OPEC needs to bring more oil into the market to stabilize prices.
"OPEC is no longer producing enough oil to meet demand and oil prices are rising as a result, just as they were in 2007 and the first half of 2008," CGES said.
"It is one thing for OPEC to have pursued ever higher oil prices when the global economy was growing at a rate of 5 percent per annum, it is quite another when the world is struggling to emerge from recession." Oil producers at large, CGES said, "ought to be worried about undermining oil demand growth."
The center, which backs up its conclusions with researched data, warned that "higher oil prices risk jeopardizing the economic recovery and are already contributing to rising inflation."
It said, "The governments of oil consuming countries have yet to raise any protest, though, because high oil prices are also helping their own renewable energy and conservation policies, while the oil industry is as happy as OPEC with high prices."
The center pointed to inconsistency in the producer group's stance on oil prices.
"OPEC's view of a 'fair' price for oil seems, once again, to be rising as actual prices
rise," CGES said. "Unless OPEC's sentiment changes, or the global economy slows dramatically once again, the world is set for higher oil prices next year."
earlier related report
Leading producer and Western ally Saudi Arabia sought to reassure consumer countries it would restrain price hawks within the 12-member Organization of Petroleum Exporting Countries as Venezuela led calls for prices to hit $100 a barrel.
Venezuela, Iran and other hard-line advocates for higher prices argued the prices could go beyond the current $80-90 level but Saudi Arabia ruled out moves -- including further output cuts -- that could encourage a further price spike. OPEC expects higher global demand in 2011 but won't change current oil production quotas.
Both the International Energy Agency and OPEC, in separate reports, saw global oil demand rising through 2011. The IEA said oil demand for 2011 could reach 88.8 million barrels a day, up 260,000 barrels a day from the current outlook.
OPEC also sounded warnings of further currency squabbles and exposure of banks to new pressures.
OPEC is reluctant to trigger any consumer moves away from its oil to non-OPEC suppliers, which could also produce a glut and cause prices to ease or even crash.
The group cited "lagging private consumption as well as persistently high unemployment" among its reasons for caution against any hasty response to the current economic climate. OPEC members are known to grow restless as prices move upward and often flout agreed quotas to profit from price spikes.
On the New York Mercantile Exchange, the price of January delivery light, sweet crude oil added $1.53 to $89.32 per barrel. Heating oil prices rose 3.38 cents to $2.4909 per gallon. Reformulated blendstock gasoline prices added 3.25 cents to $2.3418 per gallon. Natural gas prices gained 2.6 cents to $4.443 per million British thermal units.
Added to internal discipline that kept production in check, several OPEC members are seeking to increase production. Venezuelan wants to restore production lost in recent years and host Ecuador is taking draconian measures to boost investment in its conflict-ridden oil sector.
Ecuador seized licenses from Petroleo Brasileiro SA, Noble Energy Inc. and other companies active in the country after they declined to alter contracts. Ecuador hopes to cash in by attracting government-to-government contracts with cash-rich OPEC countries or high net worth corporates from the gulf.
Despite evidence that government-to-government partnerships don't necessarily translate into higher performance in the oil sector, Ecuador seems to be taking the path chosen earlier by Venezuela, with uncertain results for its oil industry.
Ecuador, the smallest OPEC member that returned to the group in 2007 after quitting in 1992, plans to offer licenses for new oil fields in April after forcing companies to switch to service contracts from output-sharing accords. Those who refused to switch, including Petrobras and Noble, lost their concessions, some of which may be up for grabs.
The circumstances in which the concessions became available have made investors -- both private and state -- wary of investment in Ecuador.
Ecuador aims to boost production as early as next year. If successful, additional Ecuador oil could enter a market with low demand, or profit from a substantial price surge.
OPEC members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
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Oil Sands report gives mixed reviews
Edmonton, Alberta (UPI) Dec 17, 2010
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