The bullish increase in oil prices has continued in the week since OPEC agreed to extend its quota arrangement for the rest of the year. On 17 June prices for July delivery on the New York Mercantile Exchange (Nymex) breached $20 a barrel for the first time this year.
Nymex prices for July have since remained over $20 a barrel, marking a $4.50 a barrel increase since the market hit a low in February.
Similar strong prices were evident in Europe where the benchmark Brent crude has put on $2 a barrel since OPEC ministers agreed to freeze output at their Vienna meeting from 15-16 June. Brent reached $17.51 a barrel on 22 June, the highest level for nine months.
Analysts say the OPEC decision to freeze production at 24.52 million barrels a day (b/d) for the rest of 1994 and to cancel its regular September meeting have played an important part in the price rally.
‘It puts an end to speculation about Saudi Arabia wanting to cut volumes if prices go too high,’ says Mehdi Varzi, analyst with Kleinwort Benson in London.
Other factors pushing up prices are the growth in US demand and the increasing involvement of investment funds in commodity trading, notably oil. Apparent demand for oil and oil products in the US has risen by about 1 million b/d since the start of the year, according to Varzi.
Political uncertainties and production constraints in some OPEC states are also playing a part in the stronger price trend, analysts say.
The fighting in Yemen, now entering its eighth week, has not yet affected oil production or exports but it has generated anxiety. Even the increased tension between the US and North Korea is credited with influencing commodity markets. OPEC’s ability to abide by the current quota agreement is also put down, in part, to the fact that both Nigeria and Iran, which have frequently deviated from their quotas in the past, face production constraints at present.
OPEC has handled the selection of a successor to secretary-general Dr Subroto with less assurance. The appointment of Venezuela’s former energy minister, Alirio Parra, was supported by 11 members but vetoed by Iran which cast its vote for Kazempour Ardebili, an Iranian.
In the absence of a unanimous decision, as demanded by the OPEC constitution, the current president of the OPEC conference, Libyan Energy Minister Abdullah al-Badri, will stand in for the secretary-general.