Economic Outlook: IEA renews pressure on Opec

On the sidelines of the Middle East Petroleum and Gas Conference in Dubai this week, International Energy Agency (IEA) executive director Claude Mandil repeated the regular request for Opec to increase its oil production in order to reduce prices.

"I see (oil) prices too high because I see that (oil) stocks are still very low, the economy is still not as bright as it could be, and there is a lot of volatility," Mandil said.

The top IEA official left Dubai to Doha to meet the Opec president and Qatar's oil minister, Abdullah Al Attiyah, reiterating the same position. The request from the agency representing major energy consumers became routine before any Opec meeting.

The next scheduled meeting of Opec is on September 24 in Vienna. Opec secretary general Alvaro De Silva ruled out the possibility of raising output ceiling this month. Attiyah said that all options would be discussed in Vienna, leaving the door open for any possibility.

But are these worries, expressed by Mandil, about oil prices and market status serious? And is the current price range threatening global economic stability as always argued by oil importing, developing countries?

Data and figures from producers, consumer, and independent sources do not support the argument. Oil market is not that tight, and Opec 10 member countries are actually pumping more than the official production ceiling of 25.4 million bpd.

The argument now is that the market could suffer supply tightness in winter, with the delay in restoring Iraq's expected output and disruption in Nigerian production.

The fact is that prices are still within the targeted range set by Opec, and the average price for the year is not going to exceed $26 per barrel by much.

Market share

It seems that these pressures on Opec are meant to weaken the group's control of the largest share of the market. The largest global consumer, the US, has been calling for full liberalisation of the market.

IEA echoes the call by asking to scrap any collectively agreed production quotas among producers. The World Bank, in a recent report this week, put it plainly that prices would be $18 per barrel in a decade. The average price of Brent, Dubai and West Texas Intermediate benchmark crude oil grades was projected to drop to $18 a barrel in 2006 and 2007 from the estimated average of $26.50 a barrel for this year.

Prices would decline as new oil production from the Caspian Sea, Russia, West Africa, US Gulf of Mexico and other sources rivalled production from Opec, which pumped about a third of the world's oil, the World Bank said.

This price range is what the major consumers think could help boost their economies, and dropping Opec's market share for the benefit of new producers could help achieving this goal.

It's not a real worry about global economy then, as the economies of big oil producers are going to suffer revenue loss by reducing oil prices by third. Some of those producers depend on oil sale for almost three quarters of their national revenues.

Speculation

The routine exchange between IEA and Opec this week is not merely pressure on the way of dialogue to reach a compromise between energy consumers and producers.

It seems to be part of a strategy to weaken the basic tool of Opec: production quotas to influence prices. In the meantime, Opec is trying to get other producers to cooperate in order to prevent a price fall. This the real exchange: market liberalisation vs. price control.

Still nobody can guarantee that full liberalisation of the market can prevent speculation sending prices rocketing to seriously damaging levels.

The author is an Arab writer based in Qatar