Security Fears Keep Oil Prices at High Levels

The price of US light crude dropped to $78 a barrel this week, compared with its recent record level of $84.10. However, despite the rise in the US crude oil reserve, prices returned to rise to $85 at the end of the week, with the prospect of a new storm threatening the Mexican coast.

OPEC is trying to limit the price rise to $80; its secretary general, Abdullah al-Badri, stated after the organization’s recent ministerial meeting that “the price of $80 is high and is not supported by the foundations of the market.” This means that OPEC is uncomfortable with this high price, and there is fear that the continuing price rise will lead to new record levels every week or so.
This will produce a reduction, sooner or later, in world consumption of crude oil, and an increase in the use of alternative fuels, not to speak of the negative impact on the economies of the world, and especially those of the developing countries.

A commotion erupted in markets after the OPEC meeting in Vienna last September, as some analysts claimed that a rise of 500,000 barrels a day is the minimum the markets expected, although everything said by OPEC ministers and the secretariat-general of the organization prior to the meeting was about the absolute non-increase in production.

At the same time, OPEC is forced to be wary of any un-planned increase in production, in view of the unclear nature of the international economy in the near future, due to the repercussions of the mortgage lending crisis in the US on the American and international economies, and the possibility of a sudden drop in demand for oil, followed by the collapse of prices to record low levels.

Also confusing the markets is that the increase was unable to halt the price increase after the meeting, although the ministerial decision stipulated an increase in production beginning 1 November and not immediately. The reason for setting a date was an attempt to provide additional supplies for the winter, when demand rises.

However, despite the OPEC decision and in view of the sudden and unnatural rise in prices, preliminary information in the tanker sector indicates a real rise in OPEC exports this month. This is expected, under the current conditions; oil countries try to benefit from price rises by increasing production and meeting the needs of companies outside the scope of their contracts.

What helped this temporary price rise was that important events took place in the markets at the time, most importantly the increasingly-violent season of storms in the Atlantic Ocean and the Gulf of Mexico, which affects the movement of tankers to oil ports in the southeastern US. More importantly, large quantities of production and American and Mexican refinery operations for a period of time, estimated at 800,000 barrels a day from the Gulf of Mexico, in addition to 2.4 billion cubic meters of natural gas.

Dar Al Hayat