By Stanley Reed From a distance, this OPEC meeting will look just like all the others of the past few decades. By the evening of Sept. 14, the oil ministers of the Organization of Petroleum Exporting Countries and their entourages will be ensconced in Vienna's finest hotels in preparation for one of their endless series of meetings. With prices over $40 per barrel, ministers and their aides will be hotly pursued by the usual huge crowd of journalist hangers-on, scrambling to hear the OPEC pooh-bahs' every word.
Yet no amount of media attention is going to change the fact that what OPEC decides at this conference, which is set to end on Sept. 15, is unlikely to make much difference. The open secret is that OPEC isn't in charge of how much a barrel of oil costs on the spot market. And it won't be able to regain control any time soon.
IVAN'S MORE POWERFUL. Fact is, OPEC is producing nearly flat out. Even if it wanted to, it can't boost output further in the short term. What spare capacity the organization's members have is in the form of heavy, high-sulphur crudes that refiners in key markets such as the U.S. don't want.
To be sure, OPEC producers are jubilant about the $300 billion or so that high-priced oil is likely to earn them this year. But over the long haul, at least some of them worry about killing demand for what's often their only export. Furthermore, some, such as Saudi Arabia, are wary of alienating the U.S.
But while the Saudis may be unhappy that OPEC has lost control over prices, which have soared far beyond the $22-$28 per barrel that the cartel says is its desired range, there isn't a whole lot the group can do about it. In a recent note, Washington, D.C.-based consultants PFC Energy quipped that Hurricane "Ivan is going to be a bigger force than OPEC in the oil markets" in the next few days.
MATCHING REALITY? Indeed, on Sept. 13, U.S. crude prices jumped by about $1.50 per barrel, to over $44, on fears that the deadly hurricane might damage oil facilities in the Gulf of Mexico. Already Royal/Dutch Shell has announced that it's shutting down production for some 270,000 barrels per day of oil in the eastern Gulf of Mexico and evacuating workers. BP (BP) and Total are also taking precautionary steps in the Gulf.
Compared to the ferocity of Ivan, OPEC looks rather weak and impotent. The organization is enmeshed in arcane debates such as whether or not to increase quotas that members are ignoring anyway. The so-called OPEC 10 countries, excluding Iraq, are now pumping 1.5 million barrels per day over their combined daily quota of 26 million barrels, making the production ceilings all but meaningless.
OPEC is also said to be considering whether to raise the $28 per barrel top limit of its desired price range by $5 per barrel or so to bring the band closer to what oil is really trading at in the spot market. But anything that smacked of further raising prices could create political sparks ahead of the November U.S. Presidential election.
SUPPLY WEAKNESS. It's not all bad news for oil consumers. Despite the high prices, markets for the most part have been orderly and well-supplied. The Paris-based International Energy Agency, which represents oil-consuming countries, says in the fall, as demand for gasoline, which refiners prefer to make from light, sweet crudes, drops, "one would expect an easing of pressure on sweet crude prices and supply."
That could be. But with demand strong and refining and production capacity limited, few analysts expect prices to go below around $35 per barrel any time soon. This means the effects of costly energy will continue to ripple through the economy (see BW Online, 13/9/04, "$50 Oil: A Spreading Slick of Pain"). OPEC may have a lot of oil, but as long as it doesn't have more to add to supplies, it won't control prices. Reed is bureau chief for BusinessWeek in London