OPEC Mulls Delay in Oil-Production Cuts

0 Comments | Insight on the News, April 13, 2004

Byline: Jamie Dettmer, INSIGHT

OPEC Mulls Delay in Oil-Production Cuts

The Organization of the Petroleum Exporting Countries (OPEC) appears ready to hand an election-year present to President George W. Bush the group is likely to postpone a cut in production quotas that was earmarked to start April 1, and industry insiders say OPEC may well endeavor to keep prices down through the summer.

Is this discreet electioneering on behalf of Bush? Not really. According to Qatar's oil minister, Abdullah bin Hamad al-Attiyah, OPEC, which pumps one-third of the world's oil, wants to "stabilize" prices, which have jumped 15 percent this year. OPEC ministers expressed concern at their last meeting on Feb. 10 that demand would slide in the second quarter of the year after the end of the Northern Hemisphere winter, but demand has held up, especially in the United States and China.

Key OPEC figures fear that a cut in production quotas and subsequent price increases could hurt the world economy and slow economic recovery, proving counterproductive in the long run.

"Historically, the second quarter is a period of low demand, but if the U.S. continues to recover, and we think it will, and if China demand is increasing, perhaps demand will increase a little bit," said Venezuela's deputy oil minister, Luis Vierma. "It should at least stay stable, and in that scenario we should consider delaying the cut until May or June" or even later in the year.

The 10 OPEC nations with quotas so far have failed to cut supplies and now are pumping nearly 26 million barrels a day to bring down prices. Venezuela's output is 3.14 million barrels a day, above its quota of 2.819 million.

Not all OPEC members agree that production cuts should be delayed, though. Algeria's oil minister, Chakib Khelil, argues that OPEC "must still" enforce the April cuts. The strong demand has surprised everyone, and OPEC too.

Crude for April delivery in New York jumped to $38.18 a barrel in mid-March, the highest close since the 1990-91 Persian Gulf War. Pressure is building in America to lower prices.

Sens. Carl Levin (D-Mich.) and Susan Collins (R-Maine) have sponsored an amendment to cancel deliveries to the nation's strategic reserves and for the Energy Department to sell oil owed to the government from production on federal lands, with the proceeds to be used for deficit reduction and homeland security. Other Democrats have called on President Bush to suspend deliveries to the reserves until oil prices ease.

Slide 'Shell-Shocks' Oil Investors

Institutional shareholders remain furious with Shell, the embattled Anglo-Dutch oil giant, amid reports that auditors refused to sign off on the company's annual accounts. Shell claims the auditors, PricewaterhouseCoopers and KPMG, were not asked to approve the final draft but declined to comment when asked whether those firms expressed concern about earlier drafts. Shell, which already has fired its chairman, Sir Philip Watts, is likely to make further far-reaching management changes in the wake of the company's savage downgrading of its stated reserves base.

A spokesman said: "Shell is considering the views of investors with respect to overall corporate governance, including the composition and operation of the parent company's boards." In early March, Shell was forced to announce a second downgrade of reserves and the shaken oil giant postponed the publication of its annual report. The U.S. Securities and Exchange Commission launched its own investigation into Shell's recent series of reserves downgrades.

The board decided not to publish the accounts pending much greater clarity on the reserves situation with the completion of a reserves review, the company said.

In addition to regulatory probes in the United Kingdom and Holland, Shell faces as many as 16 lawsuits filed in the United States on behalf of investors.

Corporate Scoundrels Dealt a Bad Hand

Will the Securities and Exchange Commission be asking the Pentagon for the services of Task Force 121 to extract corporate executives lurking in spider holes? Although that's a little far-fetched, one company has drawn parallels between corporate wrongdoing here in the United States with Saddam Hussein by producing a pack of playing cards modeled on the Saddam deck produced by the Pentagon and issued to U.S. soldiers during the war in Iraq.

The Wall Street version includes Martha Stewart as the queen of hearts, carrying a pie and a pair of handcuffs; Ken Lay, former head of Enron, who fills the "Saddam" slot as the ace of spades; and Michael Eisner, CEO of Disney, who is the five of clubs. Rumor has it that Eisner will be replaced in a later print run by Lord Black, the embattled chairman of media conglomerate Hollinger Inc. There's also a "hero" card featuring New York Attorney General Eliot Spitzer toting a gun and wearing a sheriff's badge.

"Initially, we put these together for folks who worked in securities," said Eric Burdette, a cofounder of Parody Productions, the company that produced the deck. "However, we got some consultants who advised on corporate ethics who wanted to use them in a seminar."