Record oil prices won't sway OPEC

March 4, 2008 5:30:07 PM PST
OPEC will likely leave output unchanged even as oil prices reach record highs, key ministers said Tuesday, eliciting a rebuke from President Bush. The Organization of Petroleum Exporting Countries is shying away from higher production, which could bring down prices, due to political turmoil in the Middle East and U.S. economic weakness that may soon reduce demand globally, OPEC President Chakib Khelil said as ministers gathered ahead of an OPEC meeting in Vienna on Wednesday.

"Because of the economic slowdown in the United States - which is affecting world economic growth and world demand on oil this year - I don't think OPEC will consider increasing its production," Khelil told reporters.

"Stocks are very high ... and we are going to have less demand in the second part of the year."

Bush was critical, suggesting a lack of production may induce an economic downturn.

"Understand the consequences of high energy prices," he said after meeting with King Abdullah II of Jordan in the Oval Office.

"I think it's a mistake to have your biggest customers' economies slowing down as a result of higher energy prices," he added.

On Tuesday, however, a top Energy Department official told a Senate hearing that supply and demand would suggest a price of about $90 a barrel, backing up what OPEC members have been saying for months.

Market speculation on energy prices may have added as much as 10 percent to crude oil costs and the peak may be yet to come, said Guy Caruso, head of the department's Energy Information Administration.

Oil futures fluctuated Tuesday, dipping below $100 a day after surpassing a record of $103.76 a barrel when adjusted for inflation.

Pressure has mounted on OPEC to raise output with oil prices hovering consistently around $100.

"In truth, OPEC's decision not to pump more oil is a reflection that supply is relatively good," said Anthony Sabino, a professor of business at St. John's University.

"What is driving oil prices up to the stratospheric level of over $100 per barrel is the U.S. economy, now undeniably in recession," he said. "It's not so much the price of oil is going up - it's that the value of the U.S. dollar, sad to say, is slumping."

The falling dollar has prompted speculators and other investors to shift cash to crude and other commodities as a hedge.

Khelil held open the possibility of some kind of intervention after talks with Oil Minister Ali Naimi of Saudi Arabia, OPEC's top producer and most influential member.

Expectations that OPEC might open its taps diminished, however, after an advisory committee met Tuesday. "It seems there will be no change," Iranian Oil Minister Gholam Hussein Nozari said afterward.

Kuwait and Libya are among members who have said the cartel should maintain its current output, estimated at close to 30 million barrels a day - roughly 40 percent of daily world demand.

Qatar's oil minister, Abdullah bin Hamad Al Attiyah, said the cartel was inclined to hold steady because markets don't seem thirsty for more oil.

"We know our customers very well," he said. "We ask them very simple questions, like, 'Do you need more oil?' The answer is 'no."' By contrast, Iran and Venezuela - both hawkish on prices - have pressed for production cuts.

Rafel Ramirez, Venezuela's oil minister, said he saw $90 a barrel as the long-term floor for oil prices, suggesting that OPEC was determined to ensure prices don't fall below that level.

Any increase in production, "would make no sense," Ramirez said.

OPEC reducing output now, however, "would remove a bullet from their arsenal which could be used more effectively at a latter stage if prices begin to fall," said Johannes Benigni, managing director of JBC Energy in Vienna.

"There's been a lot of suggestion about a cut, but I don't think we would support that based on what's happening with prices," said Nigeria's energy minister, Odein Ajumogobia.

Ministers said the fallout from a U.S. economic slowdown is a more serious problem.

"Global markets are well supplied," Iranian Oil Minister Gholam Hussein Nozari said Tuesday, saying the weak U.S. currency, which continues to reach record lows, is a greater concern.

The 13 OPEC members are Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela. Iraq is the only member not subject to the cartel's output quotas.


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