Beware of OIL
June 15th is the date. The OPEC oil cartel will meet again on that day. We
can surely expect that if the crude price remains below US$50 a barrel,
the production level will be cut. As we plan to drive into summer, all that
talk not so long ago about a 500,000-barrel-per-day production increase
will become history. If OPEC goes ahead and cuts production, it will shove
more fear into the mix. This is certainly not a stable market.
A couple of OPEC ministers already think the oil market is oversupplied -
and should remain that way through the rest of 2005. The fact is, OPEC’s
output is currently the highest in history, a point noted by Qatar’s oil chief,
Abdullah Hamad al-Attiyah. His concern is that if OPEC continues to pump
furiously now, it might prompt a production cut during the fourth quarter -
a scenario that would likely generate a whole lot more fear.
As it currently stands, OPEC has made provisions to pump 300,000 to
500,000 barrels per day more than current levels in order to cope with
the 4th quarter demand surge in USA. Also we must keep in mind that
there could be trouble brewing in Venezuela, the 3rd largest oil-producing
nation in OPEC. The State-run firm "Petroleos de Venezuela SA" is in big
trouble. Since the national strike that crippled the country’s oil production
two and a half years ago, pressure on the company has steadily mounted.
They have joined forces with Venezuelan president Hugo Chavez in
criticizing the company’s management strategy, with some concerned that
it is about to collapse completely, a disastrous scenario for both Venezuela
and the world. The estimates on output range between 2.1 million barrels
and 3.1 million barrels per day. While the current crop of Petroleos de
Venezuela SA workers remain loyal to Chavez (the company hired Chavez
supporters after the strike in 2002-03), they’re angry that the president’s
aides who run the company are joining hands with corrupted officials.
This is a situation worth watching and in case it goes worse, there must be
a ripple effect to be felt throughout the oil market and especially during
the summer of USA -both in pumps and in stock market.
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