Crude oil price at the international market rose to a record high of $119.74 a barrel yesterday, just as the Organisation of Petroleum Export Countries (OPEC) said it plans to increase production capacity by five million barrels per day by 2012 and nine million by 2020.
Also, THISDAY has learnt that Nigeria will remain in OPEC despite her inability to meet her production quota following unrest in the Niger Delta.
The high oil prices were driven by weak US dollar and booming oil demand last month from China, world�s second biggest energy consumer and supply worries from major producers, Russia and Nigeria, where attacks on oil facilities have continued unabated.
According to a Bloomberg report, the US dollar touched $1.60 per euro for the first time yesterday on signs that the European Central Bank would not cut interest rates because of inflation concerns.
Dollar-based commodities like oil are often bought to counter the currency’s weakness.
Crude oil for May delivery rose $1.98, or 1.7 percent, to $119.46 a barrel at 11:49 a.m. on the New York Mercantile Exchange.
Futures also reached $119.74 yesterday � the highest since trading began in 1983.
Prices are up 87 per cent from a year ago, Bloomberg reported.
Similarly, Brent crude for June settlement rose $1.17, or one percent, to $115.60 a barrel on London’s ICE Futures Europe exchange.
The contract touched a record $115.63 yesterday.
Also, the euro rose to $1.5979 at 11:15 a.m. in New York, from $1.5912 yesterday, and touched $1.6001, the highest since the European single currency was introduced in 1999.
The U.S. crude-oil supplies advanced 1.5 million barrels in the week ended April 18 from 313.7 million barrels, while gasoline inventories dropped 2.05 million barrels from 215.8 million barrels the week before, the Bloomberg News survey revealed.
The falling dollar and rising global demand for raw materials have led to records this year for commodities including gold, corn, soybeans and rice.
Royal Dutch Shell had on Monday stated that it would declare a force majeure on oil exports after 169,000 barrels of daily output in Nigeria was suspended because of attacks on its facilities.
Force majeure is a clause that allows companies to miss deliveries because of circumstances beyond their control.
The Movement for the Emancipation of the Niger Delta (MEND) had claimed responsibility for most of the assaults on oil installations since the beginning of 2006, which have cut more than 20 per cent of crude exports from Nigeria, Africa’s biggest producer.
OPEC, which is responsible for over a third of all oil in the market, had at its last three meetings, rejected calls from the United States, world�s biggest consumer, and other consumer nations to increase output quotas despite the escalating prices.
In its latest Monthly Oil Market Report released last week, the group stated that the U.S. economic slowdown might weaken oil consumption in the second quarter, even as it argued that factors beyond supply and demand were sending oil to all-time highs.
The 13-member organisation has continued to blame the rising oil prices on factors such as the weakness of the U.S. dollar, speculative trading and political tension and not because the market is under�supplied.
OPEC expects world oil demand to decline by 1.4 million bpd to 85.7 million bpd in the second quarter, when oil use typically slows as consumers in the northern hemisphere burn less heating fuel.
�With growing concerns about the slowing U.S. economy and higher gasoline prices, there is a chance that the decline could be more pronounced, leading to even lower demand in the second quarter,� OPEC said in its latest report.
However, the group has disclosed that it plans to lift production capacity by five million barrels per day by 2012 and nine million by 2020.
Making the disclosure in a chat with reporters at the International Energy Forum, yesterday, OPEC Secretary General, Abdulla Salem el-Badri, said the group was currently investing 150-160 million dollars in 120 different projects.
OPEC, which produces 40 per cent of the world’s oil, comprises Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, Qatar, the United Arab Emirates and Venezuela.
Its current output stands at about 32 million barrels per day. Production costs have risen by 50-60 per cent in the last few years as a result of wage inflation and equipment costs.
OPEC ministers will meet again in September at Vienna, Austria.
However, it has emerged that Nigeria is not under pressure to quit the organisation despite struggling to meet is production targets, according to the draft report on the reforms of the energy sector obtained by THISDAY.
The Minister of State (Petroleum), Mr. Odein Ajumogobia, said last week that the country was unable to meet its OPEC output quota largely due to supply disruptions in the Niger Delta.
He said Nigeria had a production capacity of 3.2 million b/d, but was pumping only 2.2 million b/d against its OPEC allocation of 2.205 million b/d.
But the progress report submitted recently by the Oil and Gas Implementation Committee (OGIC) to President Umaru Musa Yar’Adua said Nigeria would in the short to medium term actively pursue a higher quota and that new projects would be authorised so as to ensure Nigeria meets its quota with companies competing for production quotas.
“Under the new regime, oil companies (both national as well as local) shall be free to openly compete for the right to this quota based on the total benefit they will return to the nation,” the report said.
This model, which will be transparent in the process of allocating production, shall also be extended to gas projects to ensure that Associated Gas is utilised and not flared, it stated.
The report had also highlighted that the country risked losing a third of its oil output by 2015 unless it found ways to boost investment in joint ventures with foreign energy companies.
It specifically warned that the government needed to find ways to finance the oil industry in the country.
The Federal Government has ambitious plans of increasing Nigeria’s 34 billion barrels of proven oil reserves to 40 billion barrels by 2010 but faces pressure from OPEC not to exceed its target output.
OPEC sets output limits aimed at managing market stability.
On the downstream, the report noted that the sector was on the verge of collapse due to the inadequate maintenance of the refineries and the committee recommended that the four plants, all of which were operating below capacity, be privatised and encouraged to compete with each other.
The country regularly faces biting fuel shortages, having to import the bulk of its petroleum products, due to years of limited refining capacity.
It also says private investors shall be encouraged to establish new refineries not only to meet domestic consumption but for export.
All government subsidies in the energy sector will be eliminated and taxes on petroleum products and petrochemicals to finance infrastructure will be introduced, it recommended.
Apr242008