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Oil producers resist production hike calls

Concerted pressure is being applied by western governments on major oil producers, especially Saudi Arabia, to raise their outputs. The arm twisting comes as crude prices oscillate around $130 a barrel and amid a steady increase in the average price of oil futures that has virtually doubled in under a year.

The Paris-based International Energy Agency (IEA), which advises 27 leading industrial countries on energy issues, suggests global oil demand will reach 116 million b/d by 2030 up by a third from the current demand of 87.5 b/d.

Continuing robust consumption in China, India and within the Middle East itself is expected to more than offset declining demand in Europe and North America during this period.

Only a severe world recession could see oil prices plunge for a sustained period the IEA believes.

In a cooperative move, Saudi Arabia has agreed a limited increase in production of 3.3% and by June the country’s output will reach 9.45 million barrels-a-day.

No plans to raise levels

But Petroleum Minister Ali al-Naimi believes that any crude forecasts are vulnerable and he has emphasised that there are no plans to raise capacity beyond the kingdom’s production target of 12.5 million b/d from the end of 2009 until it obtains clearer indications over future global oil consumption.

The 13 member states of the Organisation of Petroleum Exporting Countries, which includes most Middle East crude producers, has also said it will not reconsider its output level before a meeting scheduled for September.

OPEC’s secretary-general Abdullah Salem El-Badri, states that crude oil prices have become detached from the dynamics of supply and demand. He cites heightened levels of speculation, a weak dollar and geopolitical concerns over fluctuations in crude prices for current price volatility.

Nobuo Tanaka, IEA executive director, believes a major problem aggravating market fluctuations is a lack of stock data.

Regulated trading

Other analysts, such as the Oxford Business Group, argue that many of the recent sentiments expressed by frustrated western politicians fall wide of the mark without making any attempt to address the link between the acceleration in oil prices and under regulated over-the-counter trading in commodity markets.

The group also says little attention has been paid to the number of investment funds that have moved into commodity speculation and the conflict of interests at banks who both trade energy futures and issue headline price predictions to the media.

In answer to such concerns, the US Commodity Futures Trading Commission and UK’s Financial Services Authority have declared they will scrutinise information from New York’s Mercantile Exchange and the ICE Futures Europe exchange in London to try to discover if traders are taking unusual and heavy positions exceeding normal trading patterns.

While the febrile trading environment seems likely to last, at least one leading bank is taking a calmer view. In its latest energy markets report Lehman Brothers predicts that the current crude price level is unsustainable and a correction will arrive by the end of 2008 with prices heading under $100 a barrel.

See also:
Oil prices propel GCC inflation surges
Kuwait seeks international avenues for oil revenues
Soros: Oil prices, recession and the Middle East