With the oil price already unnaturally high due to the threat of military action against Iraq, market eyes are becoming more closely focused on the upcoming OPEC meeting in Osaka on 19 September. While a number of members have indicated their intention to defend the high oil price with a rollover of existing quotas, others in the organisation have hinted at support for an output increase.
Key OPEC producers Kuwait and Venezuela have spoken out in favour of renewing the existing stringent quotas that have been implemented since the start of the year. Despite producing an estimated 1.7 million barrels a day (b/d) more than the quota in July, the organisation's official production cuts have been the major factor in propelling the oil price from less than $20 a barrel of benchmark Brent crude in early January to $28 a barrel in late August.
However, signs emerging from the organisation are far from uniform. OPEC President Rilwanu Lukman affirmed the organisation's ability to prevent prices rising too high on 26 August, saying that OPEC could easily raise its production. The comments were widely interpreted as evidence that a decision is still a long way off. Nigeria is understood to favour an increase in production, and has made public its ambition to increase its own quota.
Algeria, another producer with growing reserves and production capacity, is showing a more enigmatic hand. Although it is lobbying for a rise in its production ceiling to accommodate its changed capabilities in the longer term, it has indicated a willingness to put the oil price first. 'We want to make sure the oil price stays within the $22-28 range,' said Energy & Mines Minister Chakib Khelil on 27 August. 'I am sure OPEC will make the right decision to keep prices at this level.'
Key producers Iran and Saudi Arabia have yet to hint at their intentions, contenting themselves with vague affirmations that OPEC will cover any oil market shortfall in the event of a US military strike against Iraq.
The likelihood of such developments seemed to increase dramatically in late August when US vice-president Dick Cheney said in a speech on 25 August that Iraqi President Saddam Hussein must be removed by dint of force. His comments, the most belligerent yet from hawks in the administration, were supported by US Defence Secretary Donald Rumsfeld's 27 August insistence that the US could carry out an offensive alone. Cheney's comments put more upward pressure on the oil price, which was already at 18-month highs.
Latest US petroleum stocks estimates, released by the American Petroleum Institute on 27 August, pushed the oil price higher still, with evidence of continued growing demand for refined products in the week ending 23 August. However, a climb in US crude stocks of more than 2 million barrels helped to reduce the bullish impact of the falling refined products stocks. Brent crude was valued at $27.01 a barrel on 28 August.