Oil Prices Confound
Experts
By Adam Porter
04 March 2005
Aljazeera
Latest
figures from the oil industry have confounded expert predictions of
a price fall in the last two months. As prices have remained above $50
a barrel, Opec's statements in particular have come under close scrutiny.
Prices for the world's most favoured type of oil, light sweet crude,
rose to more than $53 on 2 March, within touching distance of record
$55 highs set last October.
Opec was so concerned
over the possibility of falling prices that it was prepared to institute
output cuts at its meeting in Vienna in January.
In the end, it declined
to do so. But looking at current data may suggest why.
The International
Energy Agency (IEA) has traditionally been quite conservative on predicting
future demand.
Last year it was
forced to recalculate its forecasts on a repeated basis. This year it
believes that demand growth will be 1.52 million barrels per day (mbpd)
annualised over 2005.
"If there is
one lesson we have learned from the exceptional oil market conditions
of 2004, it is that the world economy has become less sensitive to oil
price increases than it was two or three decades ago"
The bank Societe
Generale in Paris, as an example, is working on demand increase of around
2.5 mbpd over the same period.
So already this
year to March 1st, global oil demand has risen around 245,699 bpd by
the IEA figures or by 404,109 bpd, if you prefer those of Societe Generale.
At the same time
the most recent IEA report notes that output around the world has been
patchy at best.
"World oil
supply fell by 645,000 bpd in January to 83.6 million barrels per day,
mainly on declines in Opec supply," said the Paris based organisation.
"Non-Opec supply from Canada, Norway and the US Gulf of Mexico
remained curtailed and Russian output fell for a fourth month."
In other words Opec
did not cut it's supply, but the supply simply "declined".
Yet, speaking in
Singapore this week, the secretary-general of Opec Adnan Shihab-Eldin,
formerly director of research, issued a much more relaxed statement.
"We hope the fundamental factors, that supply is adequate and Opec
will ensure it has the capacity to maintain adequate supplies, will
bring prices to a level more reflective of fundamentals and we believe
that is $40 to $50 for US crude."
He then went on
to say that "if there is one lesson we have learned from the exceptional
oil market conditions of 2004, it is that the world economy has become
less sensitive to oil price increases than it was two or three decades
ago".
"The strong
growth of the global economy last year, in the face of rising oil prices,
clearly supports this statement," he added.
Yet this sentiment,
that high oil prices do not harm the global economy, is "clearly"
not one shared by the IEA. It is unusual to find these two major world
oil bodies at odds with each other, but the IEA is definite in its outlook.
It says "statements
from several Opec representatives suggesting that the global economy
has become immune to any negative impact from higher crude prices look
disingenuous".
"Statements
from several Opec representatives suggesting that the global economy
has become immune to any negative impact from higher crude prices look
disingenuous"
As well as these 'declines' in output from Opec and non-Opec sources
comes the stated falls in more mature fields. The IEA noted in August
last year that Saudi Arabia has been losing "600,000 to 800,000
bpd" a year.
If one takes the
mean figure of 700,000 bpd this year, Saudi fields have already declined
by around 113,151 bpd to 1 March.
Prices have also
been exacerbated in the very short term by cold winters in the US and
especially in the Mediterranean region.
Also, continued
supply disruptions in Iraq, including attacks on pipelines in the north
and infrastructure problems in the south, have seen Iraqi output fall
below pre-war levels.
All of these shortfalls,
either in increased demand or supply depletion, have to be met by new
fields or by increasing current production from existing fields.
Increasing production
by pumping harder can also lead to field damage.
But perhaps what
is more worrying for ordinary people are the signs that Opec may itself
be openly prepared to voice concerns over the short-to-medium future.
In his speech in
Singapore, Shihab-Eldin continued saying "the current exceptional
rates of economic growth cannot continue indefinitely. There is increasing
concern over growing imbalances, especially ... the large twin deficits
of the United States of America, with the potential associated risks
to financial stability".
"We do believe
that, if there is [economic] variance, it is more likely to be on the
downside, rather than the upside. This would then have a serious impact
on the revenue expectations of our member countries."
The reason that
revenues for Opec countries would be hit is shorthand for a recession.
Any recession would dampen global oil demand, lower prices and cut revenues
for Opec.
There is certainly
a difference of opinion between Opec and the IEA in some areas.
There are also seemingly
conflicting statements from both organisations.
But perhaps one
quote from Shihab-Eldin is the most pertinent for the man in the street
in 2005. A quote we may hope does not bare true.
"When we look at the future," he said "we find ourselves
facing a wall of uncertainty."