OPEC move good for all<\/p>\n
Indonesia stands to benefit greatly from the OPEC agreement on
\nTuesday to raise its oil production by 1.45 million barrels per
\nday (mbpd) beginning in April even though the country has no
\nspare production capacity. The country's 2000 state budget relies
\non oil and natural gas for almost 29 percent of its revenue,
\nassuming that crude export prices will average $20 for the April-
\nDecember period.<\/p>\n
The OPEC output increase, although much lower than the two
\nmbpd to 2.5 mbpd demanded by the United States and other major
\nconsumers, is considered by most analysts as about the right
\nvolume to ensure a gradual decline in oil prices, from a high
\nrange of US$30 to $34 over the past few weeks, to eventually
\nstabilize at $20 to $25.<\/p>\n
Indonesia and the other 10 members of the Organization of
\nPetroleum Exporting Countries have reaped a windfall as oil
\nprices have nearly tripled to as high as $34 since last March,
\nwhen OPEC members and several non-OPEC producers, notably Mexico
\nand Norway, agreed to cut output by about 1.7 mbpd.<\/p>\n
Even though the agreement smacks of kowtowing to U.S. pressure
\nfor significant additional supply to the market, the move will
\nbenefit both producers and consumers. All sides agree that a
\nprice-boom-and-bust cycle will not benefit any economy. Overly
\nhigh prices could set off upward inflationary pressures, forcing
\nan interest rate rise and consequently depressing economic growth
\nand demand for petroleum. A price crash could slash production,
\nas many fields would be rendered inefficient, which would in turn
\ntrigger a price boom.<\/p>\n
It should also be remembered that hydrocarbon is not only a
\nmaterial for commercial energy but also feedstock for chemicals,
\nan important commodity. Thus, price stability at a reasonable
\nlevel is the primary goal.<\/p>\n
The OPEC meeting was unusual in that it was perhaps the first
\ntime the organization was preoccupied with the overriding agenda
\nof how to gently lower prices, instead of the usually contentious
\nissue of how to defend market shares and the allocation of quotas
\namong its members.<\/p>\n
Yet this new development is also a boon to OPEC's market
\nclout, which was eroded by a market glut and rampant quota
\nbusting among its major producers. That the oil prices could have
\nrisen to as high as $34 a few weeks ago without a political
\ncrisis in any of the Gulf major producers, as in the Gulf War in
\n1991, is strong evidence that the oil price range will not likely
\nfall again to below $20.<\/p>\n
Another encouraging trend that is indicative of a sustainable
\nhigher range of oil prices is the steady price rise since last
\nApril, despite the reported quota busting by some OPEC members.
\nAssuming that analysts are accurate in their estimate that OPEC
\nmembers have actually been pumping out 1.2 million mbpd more than
\ntheir March 1999 official quota, and yet prices have never fallen
\nbelow $25 over the past few months, then the 1.45 mbpd increase
\nwill translate into actual additional supply of only about
\n300,000 barrels.<\/p>\n
Even in the event that lone dissenter Iran produces at full
\ncapacity of 3.3 mbpd and Iraq eventually pumps out 2.7 mbpd as
\npermitted by the United Nations, such an incremental increase
\nwill be unlikely to lead to a sudden price plunge. Certainly, a
\nmassive stock buildup will take place immediately in the second
\nquarter, with refiners having to replenish inventories which were
\neroded sharply during the past year of the supply curb. Moreover,
\nfew OPEC members still spare production capacity that can be
\ntapped to respond to market developments; Saudi Arabia alone
\nholds more than 50 percent of the organization's spare production
\ncapacity, Kuwait 15 percent, with the remainder owned by Iran and
\nIraq.<\/p>\n
Most importantly, however, is the brimming self-confidence the
\nrelatively high production discipline has built up among OPEC
\nmembers and the great lesson they learned from market
\ndevelopments over the past year. It follows that the higher their
\ncompliance with the organization-mandated production discipline,
\nthe stronger will be their influence on market prices.<\/p>\n
Hopefully, such high discipline will prevail in defending the
\noil price band that OPEC has reportedly agreed to establish in a
\nbid to prevent prices from falling again below $20. The system
\nwill work by increasing or decreasing OPEC's supply automatically
\nwhen certain price levels are reached.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/opec-move-good-for-all-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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