Wednesday, June 16, 2004

Things just keep getting curiouser and curiouser when it comes to the global oil economy.
OPEC said Wednesday it will ask producers outside the cartel to raise output to help cool high prices, but it received a quick reply from Russia, which said it has no slack in its system to boost exports.

OPEC president Purnomo Yusgiantoro said he will write to Russia, Angola, Mexico and Oman to request they pump more crude after Iraqi exports were knocked out by sabotage. Prices have stayed above $35 a barrel, despite an injection of extra OPEC barrels.

"They have spare capacity to increase production," Purnomo, also the Indonesian oil minister, told reporters. He did not give any details or a timeframe.

The Interfax news agency quoted Moscow's No. 2 oil official as saying that Russia had no spare capacity.

"We don't have a tap that we can just turn on and off. We are producing exactly as much as we can," said Sergei Oganesyan. . . .

Tanker tracking consultancy Petrologistics estimates OPEC's 10 core members, excluding Iraq, will lift supplies by 800,000 bpd in June, before the increase of formal limits next month.

Petrologistics estimates OPEC 10 output for June at 27.4 million bpd, just 500,000 bpd short of what the International Energy Agency says is the group's sustainable capacity.
Well, well, we have an OPEC which is producing just under maximum capacity, a Russia which is at maximum capacity, and a Mexico which can inject just 70,000 more barrels per day into the market.

It is interesting that OPEC is going begging door to door rather than have Saudi Arabia turn the spigot wide open. It seems that OPEC -- or rather the Saudis -- want to have it both ways. They want to preserve quotas and thus the rationale for OPEC's existence as well as meet extremely high and rising global oil demand.

I would be surprised if OPEC and the other producers weren't happy with NYMEX prices of $35/barrel. Of course, with all the instability in Iraq and Saudi Arabia, it might be impossible to hold down prices to that level for any length of time, leading to the belief that lower 'fundamentals' are better so as to provide a bigger cushion for 'non-fundamental' price spikes.

The global supply and the global demand trains still seem to be headed for one another this winter, however. I'm buying my forward contract with my fuel oil dealer as soon as I can!

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