VAGUE PROMISES FOR OIL INCREASE KEEPS PRICES FIRM
LONDON 3rd Mar. (IPS) Oil prices stayed firm Friday despite agreement reached yesterday between Saudi Arabia, Venezuela and Mexico to increase production in order to stop the prices rising further to levels that experts, including those from the Organisation of Petroleum Exporting Countries (OPEC), consider "dangerous" for both producers and consumers.
As ministers from the three leading producing nations met in London Thursday, crude oil rose 4.4 per cent to US $ 31.77 a barrel on the New York mercantile Exchange to almost ten years high. In trading in London shortly after the announcement, the price of Brent crude oil from the North Sea reached $29.12 a barrel.
Prices surged after OPEC made deep cuts in production last March, slashing output by 4.3 million barrels per day. Russia, Mexico, Norway and Oman, all non OPEC producers, went along and cut their productions as well.
Oil experts said the fact that the ministers failed to specify the size and the date of the increase in production was interpreted by the marked as existence of differences among leading OPEC producers, including Iran, the second larger producer after Saudi Arabia. "This vagueness helped markets not to react", one Iranian economist said.
"There is need for additional production and uppermost in our minds is to maintain stability in the markets. The issue is when and how much'', said Mr. Ali Al Na'imi, the Saudi Oil Minister, adding that the volume of increase for OPEC would come at the March 27 meeting of the Organization of Petroleum Exporting Countries.
But Mr. Hossein Kazempour Ardebili a Deputy Oil Minister said Iran would oppose any immediate increase. "If we increase output while demand is falling it will be detrimental to prices", he told the press.
Mr. Al Na'imi said Saudi Arabia would propose to the next OPEC Ministerial Meeting an increase that "will stabilise prices, will eliminate volatility and maintain inventories at a very reasonable level".
Oil and energy Ministers from the eleven nations that make the OPEC are to meet in Vienna on 27th March.
Mr. Fereydoun Khavand, a professor of Economy with Paris universities confirmed divergences among OPEC members, especially between Iran and Saudi Arabia, explaining that Iran's opposition to output increase comes from the simple fact that contrary to other producers, it just can not increase it's own production from the present level of 3.6 millions barrels per day.
"However, he pointed out, even Iran has no interest in maintaining the prices at maximum levels since it's major market is in Asia and Asian nations economies are still quite fragile".
One Iranian oil expert said Saudi Arabia has informed Tehran about its decision to push for an increase from next April.
Oil exporters have come under intense pressure in recent weeks from the United States and other major oil consuming nations to pump more oil in order to bring prices down.
Experts say to stabilise the prices from further rise one needs an output increase of at least 1.2 barrels per day (bpd) starting from first of April but to bring the prices down, the market needs 2.5 millions bpd.
US Energy secretary who had extensively traveled to Venezuela, Mexico, Kuwait and Saudi Arabia warning producers against serious repercussion high oil prices would have for the global economy welcomed the London statement, describing it as "a step in the right direction".
"Experts from Both OPEC and consumers has reached the conclusion that it is in nobody's interest to renew with past tensions neither to keep the crude at very high level as this will encourage oil giants to investments heavily in difficult regions or to look for other sources of energy, thus darkening the future of OPEC nations, particularly the Persian Gulf producers", Mr. Khavand noted.
The world consumes about 77 million barrels of oil a day, but production has fallen to 75 million barrels. The tight supply has forced oil companies to draw on inventories that have fallen to dangerously low levels, leading to the sharp price increases in heating oil, diesel fuel and, more recently, gasoline.
Mexican Oil Minister Luis Tellez agreed that demand has increased dramatically. "The world needs a substantial increase in the crude output and this as soon as first of April", Mr. Tellez told journalists in Paris after meeting his Norwegian counterpart.
OPEC produces 30 per cent of the world's total consumption. OIL AND OPEC 3300