LONDON (CNNfn) - Leaders of OPEC adjourned their meeting in Vienna Monday with no agreement on boosting the global supply of oil, though members pledged to resume talks Tuesday to strike a deal on exactly how much they'll release onto world markets beginning next month.|
The 11-member group ended their highly anticipated get-together without any firm agreement on how much additional oil they plan to collectively produce to boost global reserves and keep prices in check -- only that they do indeed plan to boost production by some amount to ease the lack of supply.
While almost all analysts and market watchers expect the cartel to boost production, few are certain beyond a doubt what that amount will be. The magic number has been 1.7 million barrels a day. The United States would like to see more than that; several Arab countries would like to see a smaller amount.
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"I think it will be done," Iran's Oil Minister Bijan Zanganeh said after the meetings. "We are holding discussions to move scenarios closer."
Balking at prices
The ministers' talks come as North American consumers carp over gasoline and heating oil prices sitting at near record highs -- a byproduct of OPEC's initial cuts in oil production agreed on by the group last March. Those limits -- 23 million barrels a day -- are set to expire at the end of this month.
At issue for Western officials, particularly the United States, has been the mushrooming effect those cuts have had on the price of oil and all the byproducts they make -- particularly gasoline. Oil touched near $32 a barrel earlier this month -- more than triple its value 15 months ago -- sending prices at the pumps above $2 a gallon and beyond in many parts of the United States.
OPEC members are uniformly trying to decide how far to open up the oil taps without sending prices crashing back down to the $10 level of January 1999. Persian Gulf producers, including Saudi Arabia, are pressing other OPEC members to agree to pump another 1.7 million barrels a day into the 75 million barrel-a-day world market.
One of the biggest question marks in the entire oil-price saga that's been unfolding for Wall Street, and for lawmakers in Washington, is exactly how the price of oil rose so far so fast -- particularly when no wanted it to be that way. In the West, no one wanted to see gasoline prices above $2 a gallon. Among oil-producing nations, few if any wanted to cause the political sensation now unfolding by having prices triple in less than two years.
A series of blunders?
The answers, it seems, range from political infighting between supplying OPEC nations, to bad numbers that accounted for too much Y2K stockpiling, to a huge glut of missing oil that traders assumed was out there and wasn't, to inaccurate projections about how much oil would be needed.
While all the ministers are in agreement to ease restrictions on output, they still are divided on exactly how much supply they want to unleash and where they want the price of oil to fall on the open market. OPEC produces about 40 percent of the world's oil supply, with the United States being its biggest customer.
The U.S. Energy Agency has said it wants an increase of 2.3 million barrels of oil a day, 600,000 more barrels than the Persian Gulf states have tentatively proposed. Another 300,000 barrels daily could come from non-OPEC Norway, Russia, Oman and Mexico, according to OPEC officials.
Oil experts point out that the increase suggested by Kuwait is less than the headline 6 percent suggested, as some OPEC members have been exceeding their quotas by some 1 million barrels a day. An increase of 1.7 million barrels a day would equal roughly an 8.7 percent increase in production, a boost not expected to relieve near record-high energy prices.
No quick reprieve
No matter what happens at the conclusion of the meetings, the effects of more oil working its way through the pipeline will take some time to make its way down to the consumer level, James Falvey, an oil analyst with Dresdner Kleinwort and Benson, told CNNfn's In the Money.
That's because it will take weeks for the extra oil to make its way to U.S. refineries, who then need time to turn the oil into the gasoline and heating oil that American consumers use. In addition, part of the extra supply that makes its way from OPEC will be used to restock depleted supplies, leaving refiners with even less of the raw material to work with.
Indeed, Falvey said he doesn't expect the price of oil to decline all that much from its current $27-a-barrel level -- at least for the first six months as the increase in supply makes its way down the pipeline. (330KB WAV) (330KB AIFF)
Robert Mossbacher, president of Mossbacher Energy Co. and a former U.S. commerce secretary, told CNNfn's Street Sweep that he expects to see prices at the pumps begin to drift lower before summer. "I think it will take about six weeks to see gas prices start really coming down, but I don't see them going any higher," he said.
No inflation worries. Yet.
The price of oil as it stands is not expected to cause any significant inflation pressures.
Speaking to senators Monday following a speech to the Congressional Special Committee on Aging, Federal Reserve Chairman Alan Greenspan said he did not see any evidence that rising prices for crude oil -- other than higher gasoline prices -- were having an effect on the broader economy.
"Currently we do not as yet - emphasize: as yet -- see any significant indication that crude oil price increases are in the process of embedding themselves in other areas of the economy and inflating the general price structure," he said.
"There is a question, of course, of how much this economy has lessened its need and tie to energy since we have become an increasingly high-tech, less energy-consuming nation," he said. Even so, a prolonged period of high oil prices could eventually stir up inflation, he said.
Saudi Arabia, the world's largest oil exporter, has been keen to negotiate what Falvey calls a soft landing for global oil prices. The country, one of the biggest producers in the organization, has come under pressure from the United States, where gasoline prices have surged above $2 a gallon and created concern about potential inflation pressures.
'Still some differences'
However, both Libya and Iran favor maintaining current production levels. Russia, which is not an OPEC member, also supports a freeze. The independent International Energy Agency in Paris said last week that a rise of 500,000-to-1 million barrels is needed just to balance supply and demand, while 2.3 million barrels would help to replenish reserves.
"There are still some differences," commented United Arab Emirates Oil Minister Obaid bin Saif al-Nasseri, referring to the 500,000 barrel-a-day gap between the difference of opinion between his country and rival producer Iran. Tuesday's meeting will resume at 7 a.m. ET, or noon Vienna time.
Oil prices dipped slightly on the news emerging from the Vienna meeting. Crude oil for May delivery fell 23 cents to $27.73 cents a barrel on the New York Mercantile Exchange. Brent crude for May delivery was also down 23 cents a barrel, at $25.68 a barrel.
Shares of major U.S. oil companies lost ground Monday. Exxon Mobil (XOM: Research, Estimates), the world's largest oil producer, fell 1-1/8 to 76-3/16, BP Amoco (BP: Research, Estimates) stock fell 1-11/16 to 48-15/16, and Royal Dutch Petroleum Co. (RD: Research, Estimates) fell 5/8 to 55-15/16.
OPEC is an organization of oil producing and exporting countries. Its members are: Algeria, Libya, Nigeria, Indonesia, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.
--from staff and wire reports