OPEC used to believe that its fortunes were tied to the health of the global economy. But as I noted last month, its current policy is more reminiscent of ‘the difficult times of 1973/4 and 1979/80’.
The evidence for this statement is mounting. Saudi Oil Minister, Ali Naimi, said recently that the Kingdom has ‘no plans’ for further expansion of oil supply beyond 2009. This means that current capacity will peak at 12.5mbd. From a petchem viewpoint, it also means there will be no more ethane availability, beyond current allocations, as Saudi ethane is all associated gas.
Further evidence comes from King Abdullah himself. He was reported by the official Saudi news agency as saying "I keep no secret from you that, when there were some new finds, I told them 'No, leave it in the ground, with grace from God, our children need it'." This follows the historic rebuff by the King of President Bush’s personal appeal in February to increase oil production.
This week, OPEC’s President Chakib Khelil went still further. He told the Financial Times that oil prices ‘are high due to the recession in the United States and the economic crisis, which has touched several countries, a situation that has an effect on the value of the dollar. Each time the dollar falls 1 per cent, the price of the barrel rises by $4 and of course vice versa’.
The chemical industry is already struggling to pass through current oil prices, which are increasingly looking like a ‘bridge too far’. Many still hope that they will soon fall back to the $70/bbl that was the common budget assumption. I suggested back in October that this assumption was ‘very optimistic’. Now Khelil is warning that ‘oil prices could hit $200/bbl’.