03-05-04 Supply should not be seen as the only factor that causes price
changes and it is unfair to expect OPEC to stabilise the oil market by itself,
according to a study by the Abu Dhabi National Oil Company (Adnoc).
The study, conducted by Ali Obaid Al Yabhouni, head of marketing research and
analysis department, said that other factors that affect oil price volatility
should also be considered.
These factors can be divided into two categories, namely factors outside the
oil exporter's control and factors under the oil exporter’s control. The
former include the economic environment, the weather and seasonability of
demand, consuming government taxation policies and whether the market is
regulated or free.
Additionally, oil supply is also affected by the location of the supply in
relation to the oil demand (regional imbalances), the production cost which may
be high in offshore deep and rough water or low where oil is at shallow depth
onshore with highly productive wells, political sanctions and embargoes which
are imposed by the United Nations or individual government, inventory policies
of governments such as strategic oil reserves and adequate import cover, and
policies of companies.
The study went further to note that oil prices can be affected by
transactions on the future and forward markets which may be driven by technical
trading, speculations, trading squeezes and psychological sentiments and can be
separated from the underlying fundamentals of the physical oil markets.
The study concluded that the best possibility of achieving more oil price
stability is through cooperation between oil importers and exporters.
Although OPEC has invited some non-OPEC producers to coordinate the volume of
crude oil in the market, oil importing and exporting governments need to change
current policies to take true account of each other's interests, said the study.
The study further noted that the impending meeting of the International Energy
Forum to be held in Amsterdam, The Netherlands could provide an excellent arena
to constructively address relevant matters on the issue.
Source: Khaleej Times