Opec hints at keeping oil above $50 a barrel next year
By Carl Mortished, International Business Editor
OPEC is to cut back its oil output in 2006 in order to defend the current high level of oil prices, the cartel’s president suggested yesterday.
Sheikh Ahmad al-Fahd al-Sabah gave strong hints that the Organisation of Petroleum Exporting Countries wanted to keep oil prices above $50 a barrel and would take action next year if prices began to weaken.
Speaking in Beijing, on an official Opec visit to China, the cartel’s president said that he wanted the price of Opec’s basket of crude oils to average between $45 and $55 next year.
He said: “That [price] seems to have been helping to keep the market well supplied and at the same time not hurting the world economy.”
Typically, the Opec basket price averages a few dollars per barrel cheaper than the price of the benchmark US Light Crude contract, which was trading above $58 a barrel yesterday. However, Sheikh al-Sabah said that he expected oil demand to fall at the end of the winter. “We think we have to decrease our production . . . for the second quarter,” he said.
Opec agreed yesterday to regular meetings with Chinese officials to discuss supply-and-demand issues. The cartel was wrong-footed by the extraordinary surge in Chinese oil consumption last year, when the need to satisfy a 15 per cent leap in Chinese demand eroded most of Opec’s spare oil production capacity, causing the crude price to double.
Jon Rigby, oil analyst for UBS, the investment bank, said: “The question that worries the Kuwaitis is should they commit to developing a lot of new capacity if there is a risk that the demand growth weakens.”
An acute power shortage was partly to blame for last year’s leap in oil consumption as manufacturers switched to oil-fired generators. With an improved power supply, there is less demand for fuel oil, but that is offset by soaring demand for road fuels.
Energy analysts grapple with inadequate statistical information from China. This week’s surprise admission by Chinese officials that $283 billion (£162 billion) of GDP had been overlooked raises further concerns. David Martin, an economist for the International Energy Agency (IEA), said: “If you miss economic growth of 16 per cent, what hope have you of calculating oil demand?”
The IEA has called for more clarity and transparency in national energy data.
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