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OPEC and Global Oil Consumption

Service : Economy
TEHRAN, April 21 (ICANA) – Uprisings in the Arab world have created a psychological scare among global oil consumers, as the Middle East powerhouse Saudi Arabia has increased its crude production.
Thursday, April 21, 2011 11:59:32 PM
OPEC and Global Oil Consumption

Press TV interviewed Analyst Manouchehr Takin from the Center for Global Energy Studies regarding OPEC, oil production, and obtaining accurate statistics on global consumption.

Q: The OPEC secretary general has said that he doesn't expect prices to fall below 100 dollars per barrel a day this year. Yet there is no need for an emergency session and the market is not facing a shortage. This is also being said here by OPEC Governor Khatibi. What is all the international concern about then, and doesn't a price surge require some kind of emergency measure?

Takin: Generally it is difficult each time to find the final accurate statistics of how much oil is being produced and how much is being consumed around the world. Over six months and one year later everybody will know that in April or March how much oil was used etc... So we have to do quite a bit of estimating, and what we generally feel are indirect indications. Looking at the people who do these analyses, and look at these numbers, and what the supply and demand balance is for crude oil in the oil market at present.

There are two views now. You have the OPEC side with what Mr. Khatibi said and you quoted other sources. This is true. That is one view. I think it's natural because there is a risk if these OPEC countries produce and supply more oil to the market and if the market does not require all this oil, very soon we will have an excess supply and the prices will collapse.

OPEC as well as all others who have been looking at the oil market during the past history had many occasions where indications showed that there was a need for more oil. OPEC did increase production and within a few weeks or months there was a collapse in the price of oil.

So that historic experience is like having our fingers bent. Of course it makes producers careful. If there is a risk for producers, OPEC and others don't want to have the downside risk but the upside. As to the numbers, I will just give some broad comments. In the second half of 2010 and the first last two to three months we had later before 2011, oil demand has actually increased. So the market has become firmer. Demand has gone up but also has the supply.

However, in the last two months the uprisings and revolutions have actually resulted in a reduction of oil exports from Libya which is 1.5 million barrels per day and that psychologically puts the question in the minds of people in the market: how can 1.5 million barrels per day be replaced? That is what we are talking about.

OPEC countries and especially Saudi Arabia, though they have announced it, have increased production from 8.2 [million barrels per day] to over 9 during the last few months. So you have over the last few months an extra supply only from Saudi Arabia, of about a few hundred thousand barrels per day.

Q: The OPEC secretary general and Mr. Kazemi himself have been saying that consumer countries should revise their strategies of imposing high taxes on oil as an exceptional solution to an exceptional situation. How practical is that? Also how determining of a factor is OPEC in the fluctuation of prices?

Takin: The taxation of petroleum products is a major issue that has been on for so many decades. In fact, that is a good argument for OPEC countries to say if we increase supply and the price of crude comes down, it would not mean more consumption and higher revenue for OPEC, but will have more revenue for the governments of the consuming countries.

So to be fair, the consumers should also reduce the taxation on petroleum products. That argument is not really new. It is difficult to solve it. There has to be negotiation and good will between producers and consumers. Negotiations are being done, and hopefully there will be a consensus on both sides.

As I said, it's very difficult to have accurate statistics. I think supply by OPEC has not been increasing in the last two months with the comparison of the reduction of 1.5 million barrels per day from Libya. However, there has not been a crisis in the world. More oil has been used from stocks and inventories in Europe and other areas -- especially in Europe and in Italy, where they have been using Libyan crude more. So the level of oil stocks has come down and has replenished the loss of oil from Libya.

If the level goes too far down, I'm sure OPEC will increase the supply in order to replenish. But at present, we only have had reduction of stocks and prices have gone up partly because of speculations. Goldman Sachs always had a view in their latest publications. They said there is a very large volume of money taking positions as a speculation. And that has caused the price to go up. That is another argument in favor of OPEC to not give more oil to the market.

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