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---------------------- Forwarded by Vince J Kaminski/HOU/ECT on 07/19/2000
06:54 PM --------------------------- webmaster@cera.com on 07/18/2000 10:03:23 PM To: vince.j.kaminski@enron.com cc: Subject: OPEC: Arguing over Output - CERA Alert ********************************************************************** CERA Alert: Sent Tue, July 18, 2000 ********************************************************************** Title: OPEC: Arguing over Output Author: World Oil Team E-Mail Category: Alert Product Line: World Oil , URL: http://www.cera.com/cfm/track/eprofile.cfm?u=5166&;m=1275 , Saudi Arabia's announcement earlier this month that it would increase oil production by an additional 0.5 million barrels per day (mbd) if prices remained high ignited a firestorm within OPEC.* The announcement was upsetting to fellow OPEC members because * it was a unilateral statement with no advance consultation * most observers perceived Saudi Arabia to be acceding to US pressure * it came on the heels of the June 21 OPEC meeting where a 0.7 mbd production increase was adopted with some difficulty * it seemed to contradict an expressed Saudi view that the oil market was fundamentally balanced and that only structural and psychological factors were distorting prices Subsequent to the furor it raised, Saudi Arabia backed away from promptly implementing a production increase and sought instead to develop an OPEC consensus in favor of higher output. Saudi Arabia's thwarted initiative has now become enmeshed in the production adjustment mechanism advocated over the past year by Venezuelan Oil Minister and current OPEC President Ali Rodriguez. Having refrained at the March OPEC meeting from accepting the Rodriguez adjustment formula to add or withhold 0.5 mbd of oil whenever the price of the OPEC crude basket is above or below $22-28 per barrel for 20 consecutive working days, Saudi Arabia has sought to justify an increase now on the basis of a sustained OPEC basket price above $28 per barrel. The market, however, has moved in opposition to the various OPEC signals, causing the basket price to fall below $28 on July 17, short of the 20-day period. Iran--which adamantly opposes a production increase since it is operating at capacity and would see its oil revenue decline--has led the opposition to the Saudi initiative and is insisting that the conditions specified by the Rodriguez formula have not been met. The oil market continues to react to contradictory statements by OPEC member spokesmen, and on July 18 prices for WTI settled up $1.11 at $31.90 per barrel and prices for Brent increased $0.76 to $29.72. This increase was in reaction to an OPEC signal that it intends to restart the 20-day price period which could delay OPEC action on a production increase by at least four weeks. Uncertainty about an OPEC production increase is the key factor supporting prices. This, in turn, leads to continued pressure on OPEC to implement a 0.5 mbd production increase. The "20 consecutive day" mechanism is not, however, a final arbiter of OPEC production policy. For OPEC members who are amenable to the Saudi view on production, the mechanism is more likely to be used as a rough gauge of the global market and not as an automatic trigger to implement or--as the case may be--to delay a supply increase. In addition, the Saudis are capable of acting on their own in the old-fashioned way--quietly further increasing output above their quota. More OPEC gyrations are coming--including the Secretary General's impending visit to Caracas--but, unless the market settles beneath OPEC's upper limit soon, we expect that some additional OPEC oil will be produced, however the increase may be justified. **end** Follow URL for HTML version of this message only. Note: Should the above URL not work, please use the following: http://www.cera.com/client/wo/alt/071800_18/wo_alt_071800_18_ab.html ********************************************************************** Account Changes To edit your personal account information, including your e-mail address, etc. go to: http://eprofile.cera.com/cfm/edit/account.cfm This electronic message and attachments, if any, contain information from Cambridge Energy Research Associates, Inc. (CERA) which is confidential and may be privileged. Unauthorized disclosure, copying, distribution or use of the contents of this message or any attachments, in whole or in part, is strictly prohibited. Terms of Use: http://www.cera.com/tos.html Questions/Comments: webmaster@cera.com Copyright 2000. Cambridge Energy Research Associates
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