On the eve of a pivotal meeting, officials of the Organization of Petroleum Exporting Countries yesterday emphatically promised to pump more oil, causing prices to drop sharply from record levels.
But actions taken by OPEC at its gathering today in Beirut probably can't lower energy costs significantly, at least in the next couple of months, analysts said. That is because oil and gasoline markets are heavily dominated by fears of terrorist attacks on oil installations and concerns about shortages in gasoline refining capacity.
The statements by OPEC officials succeeded in quelling a price surge after the killing of 22 foreign workers in Saudi Arabia's main oil-producing zone. Benchmark crude oil futures slid $2.37 a barrel to $39.96 in New York, erasing most of Tuesday's gains.
The current price of oil is "clearly too high, it's clearly not acceptable and we're determined to do whatever we can with other OPEC countries to bring it down," Adel Al-Jubeir, foreign affairs adviser to the Saudi royal family, said in Washington. "There is absolutely no reason crude prices should be at $40."
In Beirut, OPEC ministers made similar comments, reflecting the cartel's fear that high prices would curtail global growth and eventually depress demand for oil. "What we need is a volume that can have a really significant impact" on prices, said OPEC President Purnomo Yusgiantoro of Indonesia, according to wire service reports.
The United Arab Emirates oil minister, Obaid bin Saif al-Nasseri, said his country hopes to increase production by more than 400,000 barrels a day "to calm the heat of prices," and Algeria's oil minister, Chakib Khelil, advocated scrapping output ceilings altogether for a while to convince markets that the cartel means business. Although other OPEC members were unenthusiastic about the Algerian proposal, they said the group is likely to agree on a boost of 2 million to 2.5 million barrels a day overall. Most of that would come from Saudi Arabia, the only country with significant spare capacity.
But the Saudi oil minister, Ali al-Naimi, acknowledged in a speech that "OPEC cannot always control prices," and other forces are overpowering the cartel. Prime among those forces is the fear that a terrorist attack on a major facility could disrupt supplies at a time when markets are stretched tight by soaring demand. That factor has added an estimated $5 to $10 a barrel to crude prices, and it isn't expected to abate until after the end of the peak U.S. driving season.
"Is there anything OPEC can really do to fundamentally lower prices? It doesn't seem so, because the fear premium in the market is just too firm right now," said Seth Kleinman, market analyst at PFC Energy, a Washington consulting firm. "Given time, over the next couple of months, as this oil starts showing up in the market, you would expect prices to ease -- with the caveat that there isn't another attack. But in the short term, it's hard to see what they can do."
Moreover, the high price of crude reflects unexpectedly strong demand for gasoline combined with new environmental regulations that have restricted U.S. imports of certain types of fuel. The additional oil that Saudi Arabia can pump is mostly high-sulfur crude, which many oil refineries can't process.
"You can add a ton of crude on the market, but if there's no place to put it, it doesn't help you that much" on price, said John Kingston, director of oil for Platts, an energy news division of McGraw-Hill Cos.
"Does OPEC have an impact? Yes," Kingston said. "At this point, does putting more oil on the market have a significant impact? I would say no, although the price is down almost $2 as we speak."