Lack of commitment to new supply, a halt to Nigerian oil production and bitter divisions among oil producers are expected to deliver the reverse of the intended consequences to the Jeddah energy conference: a spike in oil prices to test the $150 a barrel market this week.
The Daily Telegraph this morning quotes OPEC president Chakib Khelil as sweeping aside Saudi Arabia’s promise to increase oil production by 200,000 barrels per day. He said it was not a lack of supply that was driving prices up but speculators, and that prices would not fall after the meeting in Jeddah which was attended by British Prime Minister Gordon Brown and US energy secretary Sam Bodman.
Venezuelan finance minister Ali Rodriguez, a former head of OPEC, told journalists he expected prices to rise further now. Venezuela, Libya, Algeria, Iran and Qatar stood opposed to an increase in oil production, blaming speculators for high prices. Libya even said that it would consider reducing production in response to Saudi Arabia’s increase, while only Kuwait pledged to follow Saudi Arabia and raise output.
The Jeddah conference held over the weekend comprised 35 countries, seven international organizations, and 25 oil companies. British Prime Minister Gordon Brown offered to host a follow-up meeting later in the year.
However, commodity markets this week will likely seize on this inconclusive and divided conference as a signal that the collective will to increase supply is just not there among the oil producers. Russian and UK oil production has been in decline this year offsetting marginal increases in production by other producers.
It is this immediate supply and demand imbalance that concerns markets, which are unlikely to be swayed by Saudi Arabia’s promises to expand its capacity by the end of 2009 and beyond.
Indeed, in a real sense the conference in Jeddah has served to flag up the significant problems of the oil market while not delivering any concrete solutions. In any market such uncertainty is usually a signal for higher prices.
With oil prices having already touched $140 a barrel, the final $10 surge to the once fantastic prediction of $150 a barrel from Goldman Sachs now looks in sight.
The relevant meeting will be on Tuesday 24 June 2008 in Brussels between OPEC and the European Union(EU)’s energy commissioner, Andris Piebalgs.
The Financial Times is saying today in its weekly World Diary, “The Week Ahead”, that following Sunday’s Jeddah summit, Piebalgs hosts the fifth round of ministerial talks between the EU and members of the oil producers’ cartel in Brussels. (1)
Piebalgs was quoted this Monday morning, 23 June 2008, as having said on Sunday in Jeddah that we are facing a unique situation, and that we should see this as an opportunity to work together, and to set a PRECEDENT for the future. Piebalgs went on to suggest a clear objective, that all can understand, for such a partnership. This may be, for example, a joint commitment to take the necessary steps with the aim of bringing oil prices to a more reasonable level, in the order for example of a TWO-DIGIT FIGURE PER BARREL, and to stabilise it at such levels for a reasonable period. (2)
It’s interesting that Piebalgs does not mention the currency in which the barrel would have a two-digit price.
What kind of precedent will Piebalgs and OPEC set on Tuesday 24 June 2008?
NOTES
(1)
FT - The Week Ahead
World Diary: June 23 – 29
Compiled by Dominic Swords
Last updated June 22 2008
http://www.ft.com/world/weekahead
SNIP
JUNE 24
EU-Opec energy dialogue
Following Sunday’s extraordinary summit in Saudi Arabia, the EU’s energy commissioner Andris Piebalgs hosts the fifth round of ministerial talks between the EU and members of the oil producers’ cartel in Brussels.
(2)
EU Energy Commissioner At Jeddah Energy Meeting
Monday, 23 June 2008, 12:09 pm
Press Release: European Union
Andris Piebalgs, EU Energy Commissioner, Jeddah Energy Meeting, Sunday 22 June 2008
http://www.scoop.co.nz/stories/WO0806/S00502.htm
SNIPS
We are facing a unique situation, and one that we should see as an opportunity to work together, and to set a precedent for the future.
+
I would suggest therefore, a clear objective for such a partnership, that all can understand. This may be, for example, a joint commitment to take the necessary steps with the aim of bringing oil prices to a more reasonable level,
in the order for example of a 2-digit figure per barrel,
and to stabilise it at such levels for a reasonable period.
+
Today’s meeting represents an opportunity to make real progress on an issue that is vital to every citizen on the planet; from the poorest to the very rich. On behalf of the European Union I can unequivocally state that we will play our part in any such partnership. We would welcome a follow up mechanism that would enable to fully implement the final conclusions of the Jeddah Meeting, and to meet at regular intervals. We need to be result-oriented, and to show our industries and citizens that the current situation is of concern to us all.
Comment by Ivo Cerckel — June 23, 2008 @ 1:01 pm