OPEC Secretary General Rilwanu Lukman insisted Tuesday that world oil prices aren't too steep, despite crude climbing to a three-month high as it marched above $32 US a barrel.
Speaking at the 16th World Petroleum Congress in Calgary, Lukman said consuming countries and angry motorists shouldn't blame large oil-producing countries for the latest price spike. While he spoke, commodity traders on the New York Mercantile Exchange drove up oil prices 82 cents to $32.56 US per barrel -- the highest point since March 6 and second-highest level in a dozen years. Lukman, however, said oil is still cheaper to buy than a bottle of water or can of soda. "Oil is not overtly expensive.
Really, we have to resist the accusation that oil is too expensive," he said. "These current prices are high, but they're not too high." Throughout this year, OPEC and key allies such as Mexico and Norway have been under intense pressure by the Clinton administration in Washington and other Western governments to pump more oil into the world's energy markets to ease escalating prices.
The group is responsible for 40 per cent of the world's overall oil production and is home to 77 per cent of the total proven oil reserves. Lukman, however, wouldn't tip his hand about what the 11 members of the Organization of Petroleum Exporting Countries will do when they hold a meeting in Vienna next week. Despite a deal by the cartel this spring to boost production seven per cent to tame high prices, oil has risen 28 per cent in the past two months in New York -- and almost eight per cent this week. Gasoline prices across Canada are also on the move, averaging a record 75.3 cents a litre last week.
Energy analysts say concerns about tight crude supplies during the summer driving season have triggered the latest rally. An American Petroleum Institute report Tuesday showed U.S. crude inventories dropped 2.1 million barrels last week. Robert Priddle, executive director of the Paris-based International Energy Agency, told the congress that the commodity markets have sent a resounding message that the world's oil appetite is underfed. "I trust the producers will listen to what the market is saying at the moment -- and $31 per barrel is not a market that is aptly supplied with crude oil." Priddle also took a shot at a new mechanism OPEC adopted in March to automatically boost supply if the price of crude moved out the $23-$28 US a barrel range, calling it a flimsy and secretive way to manage the market. Lukman countered that people outside OPEC seem to know what the cartel should do before it even meets. OPEC doesn't want to pump more oil if the price is being affected by "freak" conditions or seasonal factors and must study the issue further, he said. "If it's a freak and prices just shot up for speculative reasons, then we wouldn't jump and start pouring oil into the market," Lukman said. "If they are rising on a sustained basis, then we'll be obliged to do something -- and we will...
If they turn out to be a fluke, then we would be jumping the gun, wouldn't we?" All eyes in the coming days will be on the largest oil producing countries such as Saudi Arabia. Saudi Prince Faisal Al-Saud, a close adviser to the kingdom's Ministry of Petroleum, a key speaker at the congress Tuesday, did his best not to be drawn into the debate. "While oil prices should be adequate to induce sufficient supply, they should not be so high as to inhibit real demand," he said. As consumers grow weary of high gasoline and heating oil prices, petroleum producers and oil-producing regions -- including Alberta -- are quietly benefitting from the commodity price upturn. Canada's petroleum producers will make record profits and cash flow this year, said oil analyst Wilf Gobert of investment firm Peters & Co. in Calgary. Every $1-a-barrel increase in the price of oil contributes about $150 million to Alberta's provincial coffers.