Opinion
- Editorial- Commentary
Energy
Correspondent: Can
OPEC be broken?
A
psychological war is brewing both inside and
outside the Organisation of Petroleum Exporting
Countries (OPEC). This not-too-subtle "war" seems
likely to create more price volatility than stabilise
prices.
World oil prices briefly crossed a record US$80.00/bbl
threshold in early September, heightening concerns
that rising oil prices were pushing economies to
the brink. Last week, the US Senate passed a new
Bill aimed at breaking the power of OPEC to use
its cartel power to sustain high oil prices. The
Non Oil Producing and Exporting Cartel (NOPEC)
Act was first introduced and passed in Congress
in May. NOPEC says that it is illegal for a foreign
state to act individually or in a collective unit
as a cartel. The Act would allow lawsuits to be
brought against members of OPEC in US courts. Those
in favour of the Act blame OPEC for the high oil
prices and the increases in US gasoline prices
which are now at its highest levels in history.
The Act will change certain laws which now provide
immunity to foreign states from US court action.
But there is a strong lobby against the Act, and
President George W. Bush has threatened to exercise
his veto over the legislation. The President and
others who are against the new legislation argue
that the new law is an infringement on a country's
sovereignty . Moreover, it is felt that the Bill
will put a strain in the good relations between
Saudi Arabia and the US. The official position
of the Government is that the law could hurt US
interests. Notwithstanding, the threat of Bush's
veto, the passage of the Act demonstrates the extent
to which the US is wiling to go in order to undermine
the strength of the OPEC cartel.
However, current machinations within OPEC suggest
that cracks may be occurring in the group.
At the end of the 145th Meeting of the Conference
of the Organisation of the Petroleum Exporting
countries (OPEC) in Vienna, Austria, a decision
was made to increase the volume of crude supplied
by OPEC member states (excluding Angola and Iraq)
by 500,000 b/d effective 1st November 2007.
The conference reaffirmed its long-standing commitment
to ensuring, firstly, sound supply fundamentals
at all times and secondly, to offering an adequate
level of spare capacity at prices that will be
favorable to producers as well as consumers and
that will be consistent with the need for healthy
global economic growth.
Notwithstanding,
the polished words in the final communiqué, the new" agreement " was
not reached without intense discussions among competing
interests. The agreement emphasized the different
perspectives among member countries. On the one
hand, there is Saudi Arabia. With one of the largest
reserves basins, Saudi Arabia is interested in
preserving and conserving its assets and ensuring
that prices don't rapidly create the market incentives
to spur investments in alternative energy. In contrast,
the traditional hawks, namely Iran, Algeria, Nigeria
and Venezuela - who were reiterating their stance
against rising output. This was not surprising
since a rise in supply can mean lower prices, a
not-so-favorable scenario for price hawks. In the
end, the increase in production was only 500,000
bbls per day. To put this in context, prior to
the meeting OPEC was already producing about 900,000
bls per day, above quota. Some OPEC skeptics said
the change in output would have little impact on
the demand-supply balance as OPEC members were
before now pumping more than their quotas permitted.
What the conference did then was to legitimize
the cheating that has been occurring.
Historically, this is one of the early warning
signals that the organisation is perhaps showing
signs of weakening. Although there is general consensus
within OPEC that prices must be stabilized there
has been strong disagreement as to what exactly
is responsible for the price hikes.
Iranian Caretaker Oil minister Gholam Hossien
Norazi emphasized that OPEC should not be blamed
for the current problems in the world oil market
stating that the economic situation does not only
depend on OPEC's decision, but many factors including
capacity of refineries. Even OPEC President and
UAE Oil Minister Mohammad Bin Dhaen Al-Hamli was
cautious, saying world's refinery bottlenecks,
geopolitics and disruption in crude supply are
to blame for high oil prices, not OPEC's policies.
The Americans would strongly disagree. Meanwhile,
at least one OPEC member has condemned the NOPEC
Bill. The Nigerian senate passed a motion appealing
to Bush not to enact the passed Bill so as not
to damage the relationship between the USA and
OPEC members. This intriguing battle could get
worse or perhaps better in ensuing months.
Energy
Correspondent is
one of the most writers of The Trinidad Express.
energyczartt@yahoo.com. Petroleumworld not necessarily
share these views.
Editor's
Note: This article was first publish in Trinidad
Express, Wednesday, October 10th 2007 . Petroleumworld
reprint this article in the interest
of our readers.
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10/21/07
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