Opec's output rise fails to solve oil market conundrum By Robert Corzine in Vienna
Oil ministers of the Organisation of Petroleum Exporting Countries (Opec) ended their annual meeting on Monday with few signs that an agreement to increase output by 800,000 barrels per day would meet the needs of consumers and the concerns of analysts.
There was uncertainty, also, over exactly what the Opec agreement might mean in real terms, given that several members alreay exceed their official production quotas.
One Gulf official said it represented between 250,000 and 350,000 barrels a day of "new oil" above and beyond existing cheating by cartel members.
Others thought the number itself was meaningless: "The increase in production is not the issue," said Amir Rashid, Iraq's oil minister. "Not because it's not the right quantity, but because it's not the right issue. The issue is one of speculation, political manipulation and high taxes in consuming countries, and that wasn't even addressed here."
The most striking feature of the present oil price conundrum is the growing divide between what happens on derivative- based oil futures markets in London and New York and the underlying reality of the physical oil world.
In the latter, oil producers and companies around the world are struggling every day to find buyers for cargoes at anything near the prices which have dominated global headlines of late.
The fact that oil refineries have been running at near-full capacity suggests to many experts that there is no physical shortage of crude oil in spite of unusually low stock levels in consuming countries.
But the sentiments on futures markets has been distinctly different, with the underlying psychology of speculators steadily bullish: "The paper markets have driven the price up," said one oil company trader on Monday.
"These [Opec] guys have every reason to be nervous."
Opec insiders are just as confused as many outside observers about current price trends.
One Opec delegate was asked at the weekend whether he was surprised by current prices: "Surprised? No. Flabbergasted? Yes, definitely."
But Opec's credibility when it comes to talking down the price of oil is questionable at best.
Many oil ministers are naturally wary of price rises that are apparently unconnected with any fundamental supply and demand issues.
Equally, there is a natural reluctance to pass up the chance to profit from price surges such as that which recently sent the oil price to fresh ten-year highs of more than $35 a barrel.
That rise unleashed a consumer and political backlash from the west and elsewhere.
But with perhaps a few exceptions it is hard to imagine it triggering much soul-searching or angst within Opec's finance ministries.
But the higher oil prices rise without obvious reference to real world events gives cause for concern about how fast and far they might fall if speculative sentiment should suddenly shift.
"My concern is that if speculators keep pushing the price up it will eventually come down like a stone," said one trader on Monday.