Opec 'is losing power to control oil prices'
DUBAI: The continuing surge in oil prices is proving Opec's limited influence on the market despite the organisation committing to increasing its production ceiling, analysts said.
"Opec's role to shift prices is limited because of the weakness in its spare production capacity which, estimated at one to 1.5 million barrels per day (bpd), constitutes heavy crude" that is not sought after by refineries, analyst Waleed Khaduri said.
However, the Organisation of Petroleum Exporting Countries remains a sizeable force in the world economy, to which it provides 30 to 80m bpd of crude, said Khaduri, chief editor of the Middle East Economic Survey (Mees), based in Nicosia.
Crude oil futures jumped to a record high closing on the New York Mercantile Exchange on Friday, as markets fretted over tight US supplies despite a decision to release small amounts from a strategic reserve.
The November contract for light sweet crude climbed 42 cents to $48.88 a barrel at the close. The latest price eclipsed the prior all-time record close on August 19 of $48.70 and neared the intraday record of $49.40 on August 20.
In London, the price of benchmark Brent North Sea crude oil for delivery in November gained 20 cents to close at $45.33 a barrel a day after reaching a new intraday record of $45.75.
Opec declared in Vienna on September 15 it was lifting its official production ceiling by 1m barrels daily to 27m bpd from November 1.
But the decision left markets unmoved and has so far failed to bring down prices.
"Opec does not have the capacity to influence the oil market...which did not react to its decision to increase its production ceiling," said Kuwaiti analyst Kamal Abdullah Al Harmi.
"Opec is no longer able to impose a balance on the market, on which the organisation has lost its influence because it no longer has the spare production capacity" sufficient to do so, he added.
According to Harmi, the market needs light crude, produced notably by Libya, Algeria and Nigeria. Western refineries, notably American, don't want to use heavy crude which is produced by Gulf states and which constitutes Opec's spare capacity, he said.
The general view is that the quantity of oil in circulation is sufficient to immediately supply the market. But the spare capacity of producer countries, which is not providing a "security cushion" in the event of a disruption to production by any one of them, is at its lowest.
"Opec is not responsible for the rise in prices and is not able to lower" this upward trend, said Abdulwahab Abu Dahesh, who heads investment research at the Riyadh Bank in Saudi Arabia.
"According to expectations, Opec and non-Opec producer countries will need many years to increase their production capacity to a level which can reassure the market," said Abu Dahesh.
What do you think? Leave a comment below.
Sign up for regular Resilience bulletins direct to your email.