Crude prices settled slightly down after rising in late trade on news that the Organisation of the Petroleum Exporting Countries had suspended talks about increasing production quotas by 500,000 barrels a day.
Opec said it would resume negotiations only if the oil price hit $60 a barrel.
Sheikh Ahmad Fahad Al-Sabah, Opec president and Kuwait’s oil minister, said $53 for West Texas Intermediate, the US benchmark, was an “ideal” price.
This is a higher level than Opec had previously stated.
At a meeting last month, most Opec ministers stated that $40-$50 was a suitable price range for consumers and producers.
Earlier “Countdown Diaries”:
For most of the 90s, the reference for oil prices was the 15-20$/bbl range. Then OPEC made its fateful decision to increase its quotas as the Asian crisis was underway, and caused the oil price to collapse in late 98 – early 99 as supply increased at a time of weakened demand. The reaction was led by an alliance of Venezuela, Saudi Arabia and Mexico (not an OPEC member) to put back some credibility into the quotas, and impose some discipline on the cartel. Norway helped from the sidelines; Saudi Arabia then hit the new idea of focusing on international stocks, anddecided to support prices by preventing these stocks from building up. This new energy within OPEC, in a context of strong economic growth, led oil prices into the high 30, which started to piss off the West somewhat (it bit especially hard in Europe at that time as the euro was only worth 80+ US cents then).
So, OPEC started suggesting that 22-28$/bl was a good range for oil prices, and pretty much everybody acquiesed. Oil producers were happy; oil companies were happy, and oil consumers were happy to see some stability – and lower prices than the incomfortable 2000 spike.
Prices increased again in the run up to the Iraqi War, as geopolitical uncertainty took its toll, but they fell brutally as the ground campaign took place very quickly. It started inching back up as it appeared that the situation in Iraq was not going to stabilise, and was suddenly pushed up a lot higher throughout 2004 when eveybody was surprised by the unexpectedly strong growth of Chinese demand and imports.
But even a few months ago, this was all seen as temporary, with “financial speculators”, the odd weather pattern or the “geopolitical premium” alternatively used as excuses for why prices were really higher than fundamentals warranted. Well, we know how prices have behaved since then, but the interesting thing is how OPEC has completely shelved the 22-28$ band in recent weeks.
- first it was Saudi Arabia mentioning a 30-40$ range (as late as last month);
- then at the recent OPEC meeting two weeks ago, they stated that 50$ was their new floor;
- and now they’ve decided to use 60$ as the trigger before they do anything.
Of course, this changes very little to the fact that there is little they can actually do to ramp up production and thus bring prices down, but the spees with which they have raised the floor is pretty amazing. Are they pushing their luck (aggressively bidding for higher prices)? Or are they trying to hide their impotence by putting the bar when they would act higher and higher so that they don’t actually have to act (knowing they can’t do it)?
This only signals more price increases, and thus warrants a countdown diary.