Opec's Big Hitters Weigh in on Oil Price Debate

Strategic Insights -

As the world's leading oil producer, Saudi Arabia, appears to agree with the US government that oil prices are too high, an increasing number of Opec countries are backing Riyadh's moderate approach. Venezuela and Mexico, major architects of the production restraint agreements, have suggested that an increase in production is needed to bring prices down. However, other countries like Iran, Algeria, and Kuwait remain unconvinced that prices are too high or that they will remain at these levels in the second quarter. Meanwhile, Exxon Mobil Chief Executive Lee Raymond has weighed in, stating that there is no evidence of crude shortages and that lower oil prices are necessary to boost refinery demand.

Key Takeaways:

  • Saudi Arabia's Oil Minister Ali Naimi has indicated that he would be happy with a price of about $25 per barrel, backing the US government's stance that oil prices are too high.
  • Venezuela and Mexico have suggested that an increase in production is needed to bring prices down, echoing concerns raised by PDV officials at an energy conference in Houston.
  • The US Energy Secretary Bill Richardson has met with Mexican Oil Minister Luis Tellez and plans to meet with his Saudi and Venezuelan counterparts by the end of the month.
  • Opec members are weighing the potential size of a production increase, with estimates ranging from 1-2.2 million bbl per day.
  • Producers must consider the sensitivity of prices to production increases, with one analyst suggesting that every 1% change in global oil production results in a tenfold movement in prices in the opposite direction.
  • Petroleos de Venezuela (PDV) President Hector Ciavaldini has suggested that stabilizing world oil prices would require an increase in output of 2.2 million bbl per day for the remainder of this year.

Statistics:

  • Oil Minister Ali Naimi has indicated a target oil price of $25 per barrel.
  • Venezuela is expected to increase output by 300,000 b/d this year.
  • Norway is expected to increase production by 300,000 b/d this year.
  • Every 1% change in global oil production results in a tenfold movement in prices in the opposite direction, according to one analyst.
  • The current Opec production ceiling is 22.976 million b/d.
  • Opec is already producing 1 million b/d above its agreed production ceiling.
  • Saudi Arabia has been the smallest loser in the US as a result of agreed output cuts, with Venezuela being the heaviest loser.

Sources:

  • "Riyadh moderates stance on oil prices," Over-the-counter Service, February 23, 2001, p5.
  • "Opec in a bind on price," Over-the-counter Service, February 23, 2001, p4.
  • "Mexico wants higher oil output to stabilize prices," Financial Times, February 23, 2001.
  • "US Energy Secretary says Mexico may boost oil output," Financial Times, February 23, 2001.
  • "Petroleos de Venezuela chief says oil output increase needed," Financial Times, February 23, 2001.