OPEC needs to raise oil output before any new crisis, says think tank

UPI | FEBRUARY 2011 | SOURCE: UPI

Oil producer group OPEC needs to increase production to meet a growing global demand before considering further risks to supply from the developing crisis over democratic rights in the Middle East, the London Center for Global Energy Studies said Monday.

A CGES monthly oil report challenged the Organization of Petroleum Exporting Countries' position, frequently stated by oil-producing states' energy ministers, that the current oil supplies were sufficient to meet global demand.

OPEC needs to raise oil output before any new crisis, says think tank

"OPEC insists that the world is well-supplied with oil and that prices are reflecting speculation," said the center, in a reference to recent spurts in crude oil prices. "OPEC thus shows no sign of raising output."

Crude oil prices jumped to more than $93 per barrel in New York Monday. On the New York Mercantile Exchange, oil climbed 8.3 percent or more than $7 over the weekend to $93.47 per barrel.

It said that unrest in the Middle East since Tunisia's "Jasmine Revolution" and the resignation of Egyptian President Hosni Mubarak raised concerns about the security of supply but oil prices were rising before those developments and were rooted in firmer fundamentals.

Oil supplies were tight worldwide and stock cover went down by four days during 2010 and now was at levels last seen in 2008, said CGES, countering OPEC argument there was enough oil around to meet current needs.

"OPEC insists that the world is well-supplied with oil, arguing that potential customers are not being turned away and oil inventories remain high," said the think tank.

It said the real picture was patchy. Parts of the world, including the United States, are well-supplied with oil and that supply situation is seen behind recent falls in WTI prices.

Elsewhere, including Europe, the outlook is different. End-January crude oil stocks in Europe were at a six-year low for that time of year, while strong demand in East Asia continued to draw supplies out of the Atlantic Basin and Mediterranean sources.

Oil stocks elsewhere outside the former centrally planned economies of the former Soviet Union, China and Eastern Europe, also fell and further reduced forward cover.

CGES believes OPEC member countries are now pushing for prices in the $100-$120 a barrel range.

"As long as the Chinese continue to buy large, and growing, volumes of crude, most OPEC members see little need to act to bring down prices, while those who are usually more inclined to do so appear unwilling to act alone this time around," said the think tank, in a reference to December 2010 OPEC talks in Ecuador where members seemed divided on a future production and price strategy.

"The governments of several OPEC countries feel the need for a quick boost to their revenues as they seek to raise social and security spending in the face of the wave of unrest sweeping North Africa and the Middle East, and this can best be achieved through higher prices."

CGES said, "OPEC appears oblivious to the potential for high oil prices to derail the global economic recovery and undermine future demand for its own oil.

"The organization has always been slower to act to stop prices from rising than it has been to prevent them falling," said the think tank.

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