The leaders of the 13 Opec nations, gathering this weekend for a summit in Riyadh, are expected to resist pressure from Western governments to increase production, setting the stage for new record oil prices.
With the price of crude threatening to breach the $100-per barrel barrier for the first time since the 1979 oil crisis, the cartel has come under pressure, principally from America, to pump more to bring the price down.
Industry experts see this is as unlikely, given the worries over the slowing US economy and the fact that most members are already operating at full capacity. Saudi Arabia is the only member of the cartel – controller of 40 per cent of global supply – that is not already pumping as much as possible. The kingdom is producing about 8.7 million barrels per day, just over three-quarters of its 11.2 million barrels of daily capacity. Yet in public comments earlier this week, the Opec secretary general Abdallah al-Badri was clear in his assessment of the situation. "Frankly we don't see that we need to add more oil in the market," he said. "There is no shortage of oil."
The talks this weekend – just the third time in the history of the cartel in which the heads of state will meet – are nonetheless expected to revolve around the conflict between the price hawks and doves. The hawks, led by Venezuela and Iran, are keen to keep the price rising and bank the profits. Most of the Middle East producers, led by Saudi Arabia, would like to see a gentle decrease after five years of rising prices.
They are concerned that if the price marches inexorably upward it will eventually reach a breaking point, leading to a cut in demand as governments more aggressively pursue alternative fuel sources or use the oil they do get more efficiently. "Opec is very worried that if it touches $100 a barrel and beyond, it will trigger a demand response," said Kona Haque, of the Economist Intelligence Unit. "The price shocks in the 1970s resulted in a huge collapse in demand from OECD countries as everyone became a lot more efficient."
The other worry for Saudi Arabia is that an increase in supply could coincide with a major slowdown in the US economy, which has already begun to sputter due to the housing market meltdown and the global credit crisis. The resulting increase of supply and drop in demand would cause a plummet in prices.Reuse content