Little else OPEC can do now to lower oil prices

Little else OPEC can do now to lower oil prices: Gulf source

Washington (Platts)--24Sep2004


The world oil market is well-supplied and there are few, if any, additional
steps OPEC can take to prevent further price increases, a Gulf source, also an
OPEC delegate, said Friday. "OPEC is still trying and is making more than
enough oil" available to the market, but there is very little it can do to
bring down prices in the short term, the source said in a background briefing
with a handful of Washington reporters. He suggested the market could yet have
a "delayed reaction" to actions OPEC has taken to cool the price of crude,
which has surged to $49/bbl in recent days, and that prices should begin to
moderate beginning either in December and January. 

The source suggested that once the market, in the late fourth quarter or early
first quarter 2005, begins to feel more comfortable there will not be
shortages in the high-demand Northern Hemisphere winter heating season, prices
should begin to slip. The market is "well supplied and balanced," and stocks
are ahead of 2003 levels, he said.

Saudi Arabia and OPEC are also "trying whatever we can to reduce prices," the
source said. "The market is bigger than OPEC. It is bigger than Saudi Arabia.
It's bigger than any player." The Saudis and OPEC are willing to boost
production even more if oil companies express interest in additional crude, he
said. But so far, the companies have declined additional barrels, particularly
of heavy, sour crude, of which Saudi Arabia has plenty. 

OPEC's spare, sustainable capacity totals about 1.5-mil b/d, with virtually
all of that held by Saudi Arabia. That capacity could be brought on line
"almost immediately," the source said. He pointed out that Saudi Arabia, in an
effort to make its heavy crude more appealing to buyers in the US and Europe,
who favor lighter crudes for refining, has cut prices heavily to those regions
for October. State Saudi Aramco earlier this month made large cuts to the
official selling prices of its crude lifting in October for European and US
destinations, but did not make similar reductions for Asian customers.

The source acknowledged that strong spreads between sweet and source crude
have created a two-tier market, adding that the situation could continue in
the long term unless additional crackers are built allowing refineries to
process heavier crude. However, market demand for sweet and sour crudes tends
to fluctuate and the strong spread could narrow on its own, he said. In
addition, several OPEC producers, including Kuwait, Iran, Iran and Algeria,
have indicated that they could increase production capacity next year, and at
least some of that could be sweet crude, which would alter the margins.

This story was first published in Platts real-time news and market reporting
service Platts Global Alert
(http://www.platts.com/Oil/Real-Time%20Information/Global%20Alert/ ). 

Read more about OPEC in Platts OPEC Guide at
http://www.platts.com/Oil/Resources/News%20Features/opecindex.html.

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