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Saturday, March 18, 2006

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HEADLINE
 
viewpoint: global energy
Opec plans fight to maintain oil price
Carola Hoyos
3/18/2006
 

          The president of the Organisation of the Petroleum Exporting Countries (Opec) signalled recently the oil cartel would fight to keep oil prices from slipping much below current level, hinting it would be guided by a new price band between the high $50s and the low $60s range.
Edmund Daukoru, also Nigeria's oil minister, said in Abuja: "Somewhere in the upper $50s or lower $60s (for benchmark US futures prices) looks about the level - if it's bouncing back and forth between the upper 50s and lower 60s we jog along." He added: "We agreed to confer if prices should misbehave in the sense of prices taking a big dip or approaching a super spike."
West Texas Intermediate crude oil for April delivery on the New York Mercantile Exchange rose late this week 18 cents to $61.95 a barrel, while on London's ICE, April futures for Brent crude oil rose 77 cents at $62.97 a barrel. Oil prices have more than doubled in the past five years and Opec's last official price band was between $22 and $28 a barrel. It was ignored as prices rose and was scrapped in early 2005.
Opec met lately in Vienna and decided to keep its output unchanged at about 28m barrels a day. The 11-member group's next regularly meeting is expected to be in Caracas in early June.
Opec has made record profits on the recent rise in oil prices, but it also knows that too high an oil price could erode demand by triggering economic downturns in its major consumers - the US, Europe and Asia - or through drivers looking for alternatives, from bioethanol to the bicycle or the car pool lane.
Economists have spent much time debating at which point high oil prices become a drag on the economy. But they have failed to come up with a convincing consensus.
But the latest statements by Opec ministers and Mr Daukoru's hint later of likely Opec concern if prices rose much above the low $60s indicate the cartel may have identified the point at which it believes high oil prices begin backfiring.
Indeed, the International Energy Agency, the consuming countries' watchdog, lately reduced its demand forecasts, pointing out that high oil prices had become a drag on demand.
It is not just Opec that benefits from a high oil price. Because international oil companies have had to venture into more and more expensive projects to secure new supplies, they are increasingly dependent on oil prices maintaining their gains. Meanwhile, the higher the oil price, the more economic incentive there is for business to develop alternative fuels that reduce dependence on oil or are less damaging to the environment.
Senator Dick Lugar, chairman of the US Senate foreign relations committee, suggested early this week that there should be a $35 a barrel price floor for oil, to encourage companies to invest in alternative fuels. (Under syndication arrangement with FE)

 

 
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