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This article might be of
particular interest to some of the groups playing bigger oil
companies. As of its writing, demand was not being seen significantly in
fluctuation of oil prices (...how things have changed in less than a month
since its writing). Despite this being slightly outdated, good information
on influence of non-OPEC countries, specifically Russia.
Ronan Moran
Forbes.com
Oil Cheating For Fun And
Profit
NEW YORK - Where there's a rumor of war, there's nervousness in oil markets. It's to be expected that the saber rattling coming out of the White House about a possible invasion and change of regime in Iraq should have oil traders debating how oil markets will react. There are worries that members of the Organization of the Petroleum Exporting Countries may leave their output quotas unchanged to keep oil prices high. Last week, prices on the New York Mercantile Exchange rose above $30 a barrel, their highest point in 18 months. But it's important to keep in mind that OPEC members routinely cheat on their outputs. And chances are that any shortfall in supply won't last long. As it is, oil production is generally up, despite previous promises by both OPEC and non-OPEC states to cut production. Though OPEC member states cut their official quota by 1.5 million barrels per day on Jan. 1, quota cheating by each OPEC member has more than made up for the difference. In fact, the Paris-based International Energy Agency said OPEC members have exceeded their own quotas by 1.5 million barrels per day. If the recent earnings of U.S. oil companies are any indication, demand hasn't picked up measurably. Earlier this month, ExxonMobil (nyse: XOM - news - people ) reported a 41% drop in second-quarter earnings, compared with the year-ago quarter, due mostly to a weakness in demand for gasoline, heating oil and jet fuel. Similar earnings problems have surfaced at ChevronTexaco (nyse: CVX - news - people ), BP (nyse: BP - news - people ) and Royal Dutch/Shell Group (nyse: RD - news - people ). OPEC has been particularly concerned over the last year with increases in production by non-OPEC states, namely Russia, which happens to be the second-largest exporter of oil behind Saudi Arabia. Not bound by OPEC quotas, Russia has kept its taps open to go after the biggest share of the global oil market it can get. In the short term, Russia is hinting it will cut oil exports through the winter. The Russian Energy Ministry is saying the government should restrict oil companies to selling only 20% of their output overseas and reserve the rest for domestic consumption. The government is concerned about heating-oil stocks for the coming winter. Of course Russian oil firms, such as Yukos and Lukoil, like nothing better than to sell oil abroad, where it commands a higher price. But if government-enforced export restrictions take hold, OPEC states wouldn't be able to help themselves and take advantage of the situation by pumping even more oil above their official quotas, if only to grab back some market share from Russia. Short-term restrictions aside, it's pretty clear that Russia intends to boost its production and exports. It recently said it wants to boost exports by 20% through 2005. In late 2001 it agreed to a brief production cut of 150,000 barrels per day, but abandoned the deal in May. It has so far resisted diplomatic overtures from OPEC members to enter into another production-cut agreement. Russia has a habit of following its own mind and will likely keep its own counsel on oil production and exports. That will leave OPEC with little choice but to keep its production levels stable, or even continue with its wink-and-nod practice of flouting its own agreements. Ultimately, war or no war, oil supplies should stay healthy through the end of the year. |