The story beneath the story

OPEC members are almost all on the same page today as they prep to meet tomorrow. It’s a vast change from a just a few short years ago when so many countries came to the table with different ideas about where oil production and prices should be.
Only Venezuela’s oil minister, Rafael Ramirez, continues to push for a 500,000 barrel per day production cut in this high crude price environment. But even he has tempered his plan. Just last week he told reporters in Caracas that OPEC should consider slashing up to 1 million barrels of output per day.
Just because OPEC is unlikely to cut production tomorrow doesn’t mean the ministers aren’t worried about spring demand, the typical low ebb in oil’s cycle.
Qatari oil minister Abdullah al-Attiyah told Reuters today that oil inventories were at their highest level seen in years.

“I’m sure more oil is going into inventories than is going through refineries. The high prices are not due to supply and demand. They’re related to what is happening in Nigeria and Iraq,” he said.

Energy analyst Dave Pursell of Pickering Energy Partners in Houston said what the ministers’ quick consensus and anticipated lack of action means is that OPEC has lost control of the market. His remedy for regaining control – doubling the thin layer of spare oil pumping capacity in the group’s portfolio.
“Until then they’re like a novice kayaker caught in a classified rapid. They’re along for the ride,” he said.
That’s the story beneath the story here. OPEC can’t control how high oil prices rise. But if the inventory build-up that they fear does result in a sharp price drop this spring, the group can slash production to keep prices from falling too far or too fast. There’s already talk of taking up the issue again at an extra meeting to be held in Qatar in just a few weeks.

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