The dozen members of OPEC convene in a climate of highly charged politics, war in a member state and with countries like the United States asking for some relief from $100 oil. It is one of the most interesting meetings in a decade because it is evidence that geo-politics and oil definitely mix and cause combustion.
In one corner the price doves who want to maintain demand with reasonable pricing: OPEC heavyweight Saudi Arabia along with two other countries with spare oil to offer, the United Arab Emirates and Kuwait. In the other corner the price hawks: Venezuela, Iraq and Iran whom have traditionally pushed for higher prices.
At this meeting, it is proving more difficult to bring them together for compromise. In this case, the debate is not providing more oil to the market but sending a clear signal (not easy in this group) that OPEC is willing to provide ample supplies to meet demand.
OPEC Secretary General Abdulla El Badri told CNN at the start of the meeting that “OPEC is always ready to act to make sure the market is well supplied”. He says the market continues to price in a 15-20 percent premium based on concerns around the Arab uprisings. If one looks at the first half chart for North Sea Brent crude when prices averaged $109 a barrel, there was a spike every time an uprising began – Egypt, Libya, Yemen and now Syria. In 2010, prices averaged $79 – closer to what I like to call the “Goldilocks Scenario” a level that is not too high for importers and allows ample revenues for OPEC producers. Right now the market is out of kilter and wants OPEC to raise a 2008 quota of 24.8 million barrels a day to match current production of 26.3 million barrels. This, according to many market trackers here in Vienna, should suffice in taking some of the froth off of today’s oil market.
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