Oil producers, consumers clash over record prices
U.S. Energy Secretary Samuel Bodman confronted OPEC today at an emergency oil summit held in Jeddah, Saudi Arabia. With NYMEX crude oil futures at $135 per barrel, Bodman urged suppliers to increase output in order to combat record high prices. OPEC countered that oil speculators and a weak dollar, not supply shortages, were to blame for current prices.
Despite the fireworks, Saudi Oil Minister Ali al Naimi agreed to boost his country’s crude oil production by an additional 200,000 barrels per day (bpd), with Kuwait indicating that it would follow suit on an as-needed basis.
However, although some analysts are calling the move a victory for the world’s largest oil consumers, there is uncertainty whether such a minor production increase will have any immediate effect on crude prices.
Some OPEC states have resisted increasing output beyond current forecasts for the year. In fact, several days ago OPEC decreased its global oil demand forecast, calling for a 60,000 bpd decrease in production.
After refusing to increase output for months, Saudi Arabia’s recent about-face reveals the debate raging within OPEC, as well as the varying influence consumer nations have on the organization’s members.
Today’s summit comes only days after Iraq’s Oil Ministry announced that it intends to award contracts to several international oil companies, the decision coming more than 36 years after Saddam Hussein nationalized Iraq’s oil industry and expelled foreign oil companies. With foreign investment, the Iraqi government is planning to increase production to pre-war levels of 2.5 million bpd, ordering a 500,000 bpd increase from today’s production level.
Although it remains unclear whether or not these additional supplies will be enough to drive market prices down, it seems more certain to a growing number of oil suppliers that the same trends that have increased their countries’ wealth over the past few years may ultimately pull their respective economies down.
If customers are forced to curb consumption due to ever-climbing prices, OPEC’s influence could fade as quickly as it has grown. Despite the world’s ‘addiction to oil’, the oil cartel needs our business just as much as we need theirs.