OPEC Deliberations Unlikely to Bring Down Oil Prices
July 7, 2008 - 7:08 PM
London (CNSNews.com) - Days before the world's oil producers meet in Vienna to discuss whether or not to heed US and European calls to increase output and so bring down the price of crude oil, France is gripped by strikes linked to fuel prices and hard-hit British consumers are bracing for new gasoline price hikes and a gloomy winter.
US retail gasoline is now selling at around $1.53 a gallon, and diesel prices reached a record high this week at $1.61 a gallon.
Europeans have been hit in the pocketbook considerably harder. British consumers fork out a whopping $5.15 a gallon on average. French truckers are furious at government fuel taxes that have them paying around $3.30 a gallon for diesel.
The oil price, having tripled in the past 18 months, this week reached ten-year highs ahead of this Sunday's schedule Organization of Petroleum Exporting Countries (OPEC) meeting.
The US and European Union have urged the eleven-member OPEC cartel to open the taps sufficiently to bring down the price, currently at $33-$34 a barrel.
Late Wednesday it reached $35.19 per barrel, the highest level since markets were shaken by Iraq's 1990 invasion of Kuwait and the subsequent Gulf War.
It was reported Thursday that President Clinton was told during talks with Saudi Crown Prince Abdullah in New York that Saudi Arabia would call for an increase in production to ease the supply shortage and bring crude down to around $25 a barrel.
However, Saudi Arabia faces an uphill task, analysts say.
Other OPEC members have expressed reluctance to increase collective production by more than 500,000 barrels per day - an amount unlikely to have any affect on the current price.
Most OPEC members are already operating at full capacity - unlike Saudi Arabia with plenty of spare capacity - and fear any further output agreement would undercut their revenues.
Members of the OPEC cartel also disagree over the cause of high prices.
The Texas-based analyst Stratfor said it was doubtful OPEC would boost production enough to bring significant price relief.
"The numbers being discussed are practically moot. A half million barrels per day, even 700,000, won't bring down prices significantly," Stratfor said.
"Unless OPEC, or Saudi Arabia alone, puts more than one million barrels of oil on the market, prices will stay high well into the winter," the petroleum analyst firm said.
The London-based Center for Global Energy Studies said in a report that most OPEC countries were reluctant to increase production further since the current high price-per-barrel the member countries were enjoying should bring in $80 billion in extra revenues this year.
"Yet it must be said that the current level of oil prices will prove harmful to the global economy in due course and thus threaten the goose that lay's OPEC's golden eggs," CGES cautioned.
US Energy Secretary Bill Richardson called the current price "'unacceptably high."
"My hope is that OPEC seriously considers increasing production," he said this week. "The markets around the world ... are very clearly insisting that there's not enough oil on the market to bring the stability that is needed."
The EU also waded in, urging OPEC to agree to a "substantial increase" in production, sufficient to bring prices down to around $20 a barrel.
The price hike had resulted in a one percent rise in inflation in the EU and threatened economic growth worldwide, it said, attributing the "price explosion" directly to OPEC's "production-restriction policy."
London's Financial Times argued in an editorial Thursday that only the US had much leverage over OPEC, and in its case, restricted mainly to Saudi Arabia.
"Publicly calling for more oil to be pumped could actually be counter-productive because some OPEC countries, particularly Iran, are loath to be seen to be bowing to western pressures," the editorial said.
Meanwhile, French police Thursday struggled to prevent taxi drivers and farmers from blocking the Channel Tunnel linking the Continent with Britain while protestors elsewhere in the country continue to blockade fuel refineries and depots.
Around 80 percent of French gas stations are now reported to be dry or running out of supplies. Some are under police protection to insure emergency vehicles can get access to the dwindling supplies.
The French protestors want the government to scrap all tax on fuel. In recent days ministers have agreed to concessions demanded by other sectors, including fishermen, who prevented ferries from crossing the English Channel much to the dismay of the British government and affected trucking firms.
As is usually the case during French industrial action, cross-channel traffic to and from Britain has been severely disrupted by the demonstrations and blockades.
In the UK, retail associations warned Thursday that petroleum, already the most expensive in the EU, will again go up in price within days and possibly again after the OPEC meeting.
UK prices are substantially inflated by taxes - more than 70 percent goes to the Treasury - although the government consistently points to the price of crude when under attack.
During the summer, unhappiness over the gas price prompted a "dump the pump" campaign aimed at forcing the government to bring down the price. However, small retailers were hardest hit by the protest that quickly fizzled out.
Nonetheless, a British motorists' organization, the RAC, said, while UK consumers may not get as angry over fuel prices as the French, they could be expected to express their feelings at the ballot box in the next general election.