OIL:
Prices Set New Records in Their Own Olympics

Humberto Márquez


CARACAS,  (IPS) - The oil market appears to be competing in its own Olympics, setting a new record nearly every day this month in the price of U.S. light sweet crude, which fetched 49.40 dollars a barrel in New York Friday.

In London, the price of Brent crude -- the European benchmark -- also rose to a new high Friday, 44.59 dollars a barrel, while the Organisation of Petroleum Exporting Countries (OPEC) basket climbed to 42 dollars a barrel.

The only day this month that oil prices dropped was last Monday, following the announcement that President Hugo Chávez had survived a recall referendum in Venezuela, the world's fifth-largest oil exporter, which was seen by the markets as an indication that supplies would remain stable.

Average prices this week stood at 47.02 dollars a barrel for the U.S. WTI; 44.44 dollars a barrel for North Sea Brent; and 41.64 dollars a barrel for the OPEC basket -- a more than four percent rise on last week, when prices had already set new records, Venezuela's Energy Ministry reported Friday.

"A set of circumstantial factors, ranging from climatic to political, and passing through the obvious market elements, are behind this spiralling of prices," Francisco Mieres, a professor who specialises in the oil economy at Venezuela's Central University, told IPS.

"And we can expect them to continue climbing in the next few days, although they should stabilise within a few months," he added.

The Energy Ministry report attributed the surge in prices to the increase in violence in Iraq, where U.S. forces are fighting Shiite rebels in the city of Najaf, and to the uncertainty surrounding exports by Russia, due to the Yukos oil company's continued financial troubles.

The Ministry also noted that the market has felt the impact of fears regarding the level of supplies, "because there is no significant surplus capacity to confront a possible global shortage of oil."

Another factor is the draining away of U.S. oil and petrol inventories in the summer vacation season. "The king of consumption is still the four-wheel-drive (SUV) vehicle in the U.S.," said Mieres.

The president of OPEC, Indonesian oil minister Purnomo Yusgiantoro, told reporters in Jakarta Friday that "I am very concerned with the continuing rise of oil prices, but we will do (our) best at the September (15) OPEC meeting" to boost production.

OPEC is made up of Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.

According to its own figures, OPEC (not including Iraq) placed 29.6 million barrels per day (bpd) on the global market in July, out of the total global output of 80 million bpd.

OPEC projects average global demand this year of 81.2 million bpd, and the International Energy Agency, the energy forum for 26 industrialised consumer nations, forecasts an average of 82.2 million bpd.

Global demand is growing, with consumption remaining steady in the United States and rising in China and India.

Consumption in China has increased 17 percent so far this year, and the Asian giant devoured six million bpd in 2003, of which it imported 2.6 million bpd.

Oil imports in India, which consumed 2.4 million bpd last year, 1.6 million of which were imported, will increase 11 percent this year, the state-owned Indian Oil Corporation reported.

Weather conditions have also influenced oil prices, forcing the temporary closure of oil installations in the North Sea and the Gulf of Mexico, "but those factors should be overcome by year-end," said Mieres.

Meanwhile, the sense of uncertainty is fed by the conflict in the Middle East. "The biggest impact is from the intense speculative activity in the futures market, based on aspects like the situation in Iraq," said Alí Rodríguez, president of Venezuela's state-run oil monopoly, PDVSA, and a former secretary-general of OPEC.

The Mehdi Army, a group that claims to follow Shiite Muslim cleric Moqtada al-Sadr, claimed responsibility for setting fire to an oil well near Amara, Iraq and threatened further attacks on Iraqi oil installations.

Influential former Saudi oil minister Sheikh Ahmed Zaki Yamani pointed to "political factors: the Iraqi occupation, the Venezuelan referendum, tribal disputes in Nigeria and now the Russian company YUKOS," saying "This panic is being used by the speculators."

Saudi Arabia could boost its current output of nine million bpd by adding 1.3 million bpd in September, said Saudi oil minister Ali al-Naimi.

But that is not the only signal that the September OPEC meeting will send out. The cartel also plans to discuss a possible modification of the range of what it considers a fair price for its basket of seven crudes, set at 22 to 28 dollars in 2000.

Under the price band system, OPEC increases production if prices remain higher than the maximum and cuts output if prices sink below the lower limit.

But since December, prices have remained above the upper limit, despite the fact that OPEC has been pumping more and more crude.

OPEC members like Venezuela have suggested raising the price band to between 28 and 35 dollars a barrel -- an indication that prices, even if they drop, will not return to the level marked by the previous band.

But OPEC "must also design policies and programmes that take into account poor oil consumer nations in the developing South," said Mieres. "Relations up to now have been with transnational corporations and the industrialised North, and that has to change."

The analyst suggested, for example, that OPEC could offer poor countries in sub-Saharan Africa "a special fund for fighting the deforestation caused by the people's search for firewood for fuel. And in Latin America," he added, "it is time to accelerate efforts towards energy integration."