Eric Watkins
Oil Diplomacy Editor
The Organization of Petroleum Exporting Countries has helped the world weather a number of crises over the years, but it continues to be mistrusted, if not outright maligned.
"There is no reason for the price [of oil] to go higher. Some OPEC countries have started looking at ways to divert their crude to Europe," said one Saudi source, shortly after the outbreak of hostilities in Libya.
"We are in active talks with European refineries to find out what quality they want and we are ready to ship it as soon as they need it," the Saudi said. "This is the way buyers and sellers work. We need to find out what they want before we take any action."
Traders issued their doubts.
"While news that Saudi Arabia is increasing its crude output to more than 9 million b/d…helped ease concerns about short-term supply, the crude oil produced is not an exact substitute for Libyan's crude," one said.
Exact substitute?
Huh? Did he not get the memo? More to the point, did he or anyone else hear of any refiner in Europe or anywhere else complaining that the replacements would not be an "exact" substitute for the lost Libyan output?
By then, world oil supply had been cut by 500,000-750,000 b/d following the outbreak of hostilities in North Africa, the International Energy Agency said, adding it was ready to release emergency stockpiles if needed.
"The IEA is also in close contact with OPEC and major producer countries and the Governing Board takes note of the reports regarding their willingness to draw on their excess capacity to ensure additional supplies if required," it said.
Even that was not good enough for one trader.
'Declarations of intent'
"The market is looking at the Saudi and IEA statements as declarations of intent, which isn't the same as actually putting physical production on the market," he said.
"The market is now focusing on the potential of lost barrels, not only in Libya but Algeria, and the possibility of protests elsewhere that could easily lead to tightening supply."
Oh, that's right. It's the domino theory again. But OPEC was not to be drawn.
"Despite the onset of the low seasonal demand period, recent disruptions may create some anxiety in the market, providing grounds for increased speculative activity," OPEC said.
"The message hasn't changed—it remains unclear how much extra oil they will end up putting on the market," a trader retorted. "OPEC prefers to point a finger at speculation for volatility, failing to recognize the heightened degree of risk aversion relative to current developments."
For some traders, it seems that enough is never enough.
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